by Tony Vidler 
I have a strong sense that a lot of advisory firms are “going out of business” at the moment and don’t even realise it.
For a very long time markets were going well, and commission and fee rates were at the high end of the scale, and there were plenty of consumers using advisers, and a lot the anticipated regulatory bite was still just hot air for most practitioners….
Maybe they were the good old days huh?
There’s little doubt that many advisory firms are still getting enough (if not plenty) of new business, and getting pretty well paid for it in the main. There’s also little doubt that they are having to work a lot harder to do so than they ever had to before. While there has been plenty of regulatory reform, but regulators are often still trying to figure out how the industry works and where they should be focusing their efforts, and they are still figuring out how to apply new laws and standards. For many advisers there have been a lot of distractions and downtime dealing with al of this of course, but fundamentally things have been going along well enough…they could be better of course, but things have been good enoiugh during a challenging last couple of years.
And at last there is a sense of “we’re getting through it…the end is in sight…..”. Just have to get that inflation, dramatically increasing retail interest rates and turbulent investment markets stuff back under control and all will be well. Right?
Not so fast…bringing inflaction and interest rates back down and getting investment returns smoothed out again are not the panacea for advisory firms. They might be for consumers, but not advisory practices.
Generally speaking I am no doom-merchant, and am far more disposed to look for opportunity in change than to be “Chicken Little”….BUT…
Financial Services will experience the same pressures for the same reasons other service industries have. Whether we are looking at the real estate industry or the travel agency business, the services sectors which are not bolstered by heavy supplier-cost-subsidies and large success-fee remuneration structures have had to reinvent themselves in the face of new competition from different business models and a flight by consumers to convenient and cheaper self-service options. Quite a few businesses in those sectors have not been able to transform rapidly enough of course and have gone to the wall….I guess that is “culling the herd” right? The pandemic was not the reason for those sorts of service businesses dying; it merely accelerated the inevitable.
In many other industries where businesses have had to transition from “protected species” to “apex predator” there is a defining line between those who make it and those who are culled.
For financial services practitioners those in the lower triangle (below the orange line) are at risk of going out of business. The self-service options which are increasing by the month in everything from estate planning through to portfolio construction are going to eat those “below the line” business models. Any advisory firm which has little in the way of “top of mind” awareness and limited or little wallet share of their existing clients has zero client loyalty in effect, and consumers will exercise their increasing options by voting with their wallets and feet….
Banks are the masters of gaining share of wallet from consumers. We need to learn from them and imitate their tactics where we can. Low cost, loss leading, transactional services to gain customers is something we must consider. Having a strategy to then continually build brand familiarity and trust with those consumers while we provide further services and products of increasing profitability to them over time is essential.
In plain english; having a hybrid practice model which enables consumers to solve simple problems with simple products or services at a low cost (to both the consumer and the practice) and which may not even have an advice component of any significane to it is a critical function. It is that initial engagement function which then provides the opportunity to build top of mind awareness and increasing wallet share over time.
Think of it perhaps as a “paid prospecting” strategy. Build the functionality to enable consumers to do some business with the firm which pays the firm to engage further with those consumers…and perhaps turn them into high value clients over time.
Creating a strong brand and level of awareness and developing deep customer relationships then becomes the firms objective.
Failure to achieve either a share of wallet or a dominating share of mind will result in the inevitable death of an advisory firm. The robo’s will eat you for lunch. Or the apex predator advisory firms will. Or the institutions themselves. Or the clients will just leave opt out of all services altogether through ignorance and apathy. Take your pick…it’s a cruel world out there and there’s no shortage of ways to die when you are one of the slowest or weakest animals in the herd. It’s a law of nature really isn’t it: the destiny of the slowest and weakest in the herd is to be some predators dinner.
While this may sound incredibly pessimistic, it shouldn’t be seen that way. The good news is that advisory firms who have not realised what changes are coming and what it means for themselves do have time I believe to adjust. Work out how you are going to not just compete, but be the dominant brand, when it comes to financial services in your clients and target markets mind. Work out how you are going to increase the services and/or products which you deliver to clients over time. Work out how and where you are going to be able to develope services or utilise product solutions to increase the share of wallet from those you do work with.
Above all, have a plan. Or you will be one of those advisers who are going out of business already, even if that takes a while to happen.
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