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.
Markets are going well, and commission and fee rates are still at the high end of the scale, and there are still plenty of consumers using advisers really, and a lot the anticipated regulatory bite hasn’t really hit home for most practitioners….
What’s not to like about it?
Advisory firms are getting enough (if not plenty) of new business, and getting pretty well paid for it in the main. Consumers aren’t complaining too much or too vocally, and regulators are often still trying to figure out how the industry works and where they should be focusing their efforts. Institutions are still engaging providing extravagant perks and trips away for their strongest adviser supporters, and distribution is still largely in the drivers seat in financial services. For many advisers things are going along fine…they could always be a little better of course, but things are good enough.
Generally speaking I am no doom-merchant, and am far more disposed to look for opportunity in change than to be “Chicken Little”.
Financial Services will experience the same pressures for the same reasons as other service industries. 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. Quite a few businesses in those sectors have not been able to do so of course….I guess that is “culling the herd” right?
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 grey triangle are at risk of going out of business.
The rest will survive when regulation begins to bite, and remuneration levels ease back, and institutional subsidies & incentives which reward inefficiency disappear, and consumers express their dissatisfaction 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.
Hand in hand with that is the need to build “share of mind” with them. Creating a strong brand and level of awareness of all that we do, and can do, and developing deep customer relationships is just as critical as getting a greater share of their wallet.
Failure to do either will result in the slow death of an advisory firm as it exhausts itself trying to compete inadequately.
Failure to do both will result in rapid 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 you to die. Take your pick…it’s a cruel world out there and there’s no shortage of ways to die when you are amongst the weakest animals in the herd. If that is you, then your destiny is to be someone else’s food.
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 mind. Work out how you are going to increase the services and/or products which you deliver to clients over time.
Have a plan. Or be one of those going out of business already. That’s the choice.