Journal of Financial Planning: July 2014
Dan Moisand, CFP®, has been a practicing financial planner since 1991. He is a principal at Moisand Fitzgerald Tamayo LLC in Melbourne, Florida, and former president of FPA.
The other day, we bought a car. We did not buy the cheapest one. On one hand, this was a completely sensible decision. Anyone who’s driven more than one car knows that not all cars are created equal. Some get better gas mileage than others. Some are built sturdier or otherwise safer. Some have luxurious interiors, impressive sound systems, and all sorts of whiz-bang features while others are stripped-down.
But some would say we made a foolish decision. We have laws in this country about where we can drive our vehicles, how we are to interact with other drivers on the road, and of course how fast we can drive. If these rules and regulations are followed, there is no meaningful difference in the amount of time it takes to get from point A to point B in one vehicle over another.
So, if you’re someone who views the purpose of owning a car to be strictly getting you from point A to point B, the price of the vehicle can be the most important factor in your decision. This is true of many things in life and goes back to Marketing 101. If the buyer believes product or service A to be equal in quality to product or service B, they will almost always make their purchase decision based on price.
Our Problem Is an Old One
Last year, in “Rise of the Machines” (May 2013 issue of the Journal), I wrote how we should not fear being replaced by robo-advisers and their technology. I pointed out that for decades, technological advances have been nothing but helpful to practicing financial planners, and I believed it would remain so. We provide value in many ways in addition to the service the robo-advisers offer.
The environment in which consumers must operate has created high demand for good financial planners. Social Security is complex and needs revision, pension plans continue to disappear, the tax code gets more and more convoluted, and consumers are asked to make more decisions about increasingly challenging topics about which they have no training. They are inundated with information from a variety of new media with no ability to sift through what is good information or what is actually relevant to them.
When an objective observer looks at the services provided by a good financial planner and compares that to the offering of a robo-adviser or other low-cost provider, there are substantial differences. The consumer is not getting the same thing at a lower price. They’re getting a small portion of the services a good financial planner provides for that lower price.
I realize that I’m preaching to the choir, but don’t mistake these encouraging words for clear sailing. The profession as a whole does indeed have a problem. It’s not a new problem created by robo-advisers. It is an old problem that’s come to light because of the publicity that the robo-advisers have been getting recently. As a lot, we are excellent at solving puzzles for clients, but we kind of stink at marketing.
Enter the Cyborg Adviser
There have always been low-cost providers in financial planning and always will be, like any other business. If you wish, you can simply lower your fees. A consumer who sees two products or services at the same price will ignore the price and look at other factors. In this case you’d look pretty good because of all the other critical things you do that the low-cost, stripped-down provider does not.
To make a living doing this, however, you would have to change your practice and scale down the services. You would have to scale them enough so the low-price shopper could still see a difference, yet you’d be able to provide the additional services efficiently.
This is exactly what some of the so-called “cyborg adviser” offerings are doing. Here you have the technologically backed automated investment management coupled with human planners. You might be able to compete with these cyborg advisers by providing more of the real human connection that often comes from smaller organizations, but you still have a marketing problem. Your offer may be more attractive, but many of these robo/cyborg outfits have far more funding and much greater visibility. You may never get a chance to connect on the human level with people because they can’t find you.
Of course, being found has been the challenge for traditional financial planners for, well, forever. I remember years ago a prominent planner (I think it was Roy Diliberto) was asked how he markets. He quipped that he stared at the phone waiting for it to ring. When asked how he ramps up his marketing, he said he “stared harder.
Now, I am not suggesting in any way shape or form that I’m even good at marketing. So if you’re waiting for a list of to-dos to improve your marketing, I’m about to disappoint you. I think that’s territory that’s much better left to real marketing experts, and there are plenty you can talk to, many of whom are active within FPA and the profession.
What Price Do You Charge?
What I will do is leave you with two thoughts. First is, with all the hoopla about venture capital money raised by robo/cyborg advisers and new, low-cost offerings from some pretty big outfits, try not to forget another important thing you learned in Marketing 101: The price you charge communicates relative value.
When looking to buy something, most people assume that the low-cost provider is also the low-quality provider. Almost every human being has had the experience of buying something because it was cheap and finding out just how cheap it was.
For me, the most painful experience was with my leaky roof. I lack the expertise necessary to assess which roofing company was most skilled, so I went with the lowest bid from the companies that seemed reasonably competent. A few months later after a heavy rain, I was calling one of the more expensive firms. The roof no longer leaks.
So if you are a good financial planner and are not marketing yourself as a low-cost provider, you may already have an advantage—at least with a good proportion of the population. I don’t doubt for a second that at various times you may be frustrated when a low-cost provider tries to convince the public that the quality of the work they do is equal to that which you provide, or that what they provide is adequate and the extras you provide are unnecessary. Rest assured, that will be a tactic employed by some low-cost providers.
You Alter Lives for the Good
That leads me to my last point. If you are a halfway decent financial planner who really does provide coordinated financial planning, please do not think for a moment that what you do isn’t worth far more than the price the typical low-cost providers are trying to undercut. You don’t just manage accounts, you alter lives for the good.
The complexity of personal financial issues and the volume and velocity of information thrown at the public is only intensifying. Being able to make sense of all this within the context of each family’s unique attributes is a service that is desperately needed. It’s natural to worry about one’s ability to communicate this value effectively, but try not to spend any time worrying about whether the value is there or not. It absolutely is. It isn’t even close.
You are far more likely to identify threats to and opportunities for clients by helping with tax planning, resolving cash flow issues, properly assessing insurances, paying for college, caring for parents or adult children or both, or many other things, because of the comprehensive nature of the work you do.
It’s not just that you will see things a cut-rate provider will not see; it is that the cut-rate provider won’t even try looking. They aren’t paid to look or care because the bottom line is they can’t afford to.