Journal of Financial Planning: November 2013
Rick Adkins, CFP®, ChFC®, CLU®, is president and CEO of The Arkansas Financial Group Inc. in Little Rock, Arkansas. He served as the 2003 chair of the Board of Governors of the Certified Financial Planner Board of Standards. Email HERE.
For my entire career I’ve had a postage meter. In the 1970s, Pitney Bowes had a monopoly on postage meters, thanks to the creative genius of Arthur Pitney and Walter Bowes who built the first U.S. Postal Service-approved postage meter in 1920. When you ran out of postage, you called the local Pitney Bowes office, and they sent a guy over who opened your machine, rolled the little dial forward for the amount on your check, and locked your meter with a wire secured by a lead clasp with the appropriate imprint. You used a metal scale—much like the one in chemistry class—to weigh the mail. Then you put the appropriate postage on the envelope. That’s how things worked for more than 50 years; you didn’t question it.
Yet an attitude developed similar to the one Lily Tomlin’s character Ernestine, the telephone operator, expressed on Saturday Night Live with, “We’re the phone company. We don’t care. We don’t have to.” Pricing wasn’t competitive and service wasn’t that hot. When we found a suitable alternative in the 1990s we changed to another provider, yet we never considered, “Do we really need a postage meter?”
Recently, our latest postage meter salesperson scheduled a meeting with us because our 45-year contract was expiring. He was excited to share with us that although the cost of the meter would stay about the same, our true cost would go down $5 per month because no longer would the toner cartridge arbitrarily shut down at the end of a year (even though it was half full).
While he was talking, my mind drifted to a recent trip to the post office to buy a book of stamps for my wife. The machine printed them while I waited. Things are changing in the world of postage—even at the post office. It dawned on me that we now send reports through a client portal instead of putting them in envelopes and mailing them to clients. In fact, most of our bills are paid by credit card, not a mailed check. Even the credit card bill is paid electronically. My question to the salesman was, “Why do we need a postage meter at all?” His best response? “Convenience.”
After analyzing our mailing behavior, we were only mailing 15 pieces per month. So what was our total cost per item? Sixty-two dollars per month for a postage machine; a couple hundred dollars a year for a toner cartridge (which could drop to $100 per year); the meter tape strips, and of course, the postage itself. It costs us about $2 to mail a 46-cent letter.
What Does This Have to Do with the Planning Profession?
Pitney Bowes started out as the only game in town. It not only had a differentiated business model, it was the only one approved to do what it did. But over time, the company faced increasing competition from other companies that could do the same thing. Price competition ensued to the point that the dispensing of postage became a commodity. The same could easily happen to the financial planning profession if we follow the Pitney Bowes model.
Absent a monopoly, we’ve tended to use differentiation as our method of attracting clients. In the mid-1980s, financial planning firms began registering as RIAs, and “fiduciary” was their differentiator. This came closer to reality in the early 1990s with the creation of portfolio accounting systems along with trading platforms, first at Schwab, then at Fidelity, which eliminated the necessity of a broker-dealer relationship. This caused the term “fee-only” to become the new differentiator. The academic work of several Nobel laureates in the fields of finance, economics, and psychology formed the structure and processes of many firms, adding another layer of differentiation.
Newness Is Not a Differentiator
Over the past 15 years, it seems that “newness” has become the primary differentiator. Yet, as Seth Godin recently blogged, things are only new for now. New is always temporary. One new item, concept, or technique is soon replaced by another.
A profession cannot long exist without a systematic body of theory that is developed, tested, and proven. “New” is seldom tested or proven; it’s simply new and tantalizing. Additionally, the quest for newness can destabilize sound, proven methods. It’s difficult to sort the “bad new” from the “good new” because little of the new stays around long enough to actually be tested. That’s OK for phones and tablets, but it can be devastating if you don’t know what’s “right” until you’re too old to realize it was a pipe dream and your retirement future is devastated.
Do for Others What They Can’t Do for Themselves
What’s our profession’s protection from becoming commoditized as we systemize processes to achieve scale for growth? What would cause your clients to ask, “Do we really need a financial planner?” Clients want to be assured that they can live comfortably in retirement, even in bad markets. They don’t really care what new technique or gimmick we’re using this year to invest their money.
What do you deliver to clients, or how do you deliver it, that would cause clients to do the math on the cost/benefit of your services? Are you still hanging your hat on some combination of “fiduciary,” or “fee-only,” or “new” to differentiate yourself?
Here’s where a profession hangs its hat: Clients have problems that they can’t well solve on their own, due either to technical or behavioral reasons. A complex, systematic body of theory that solves those problems exists (and evolves) that can be mastered by those who are trained academically and experientially. That mastery, when applied for the benefit of clients to solve their problems, causes the public to recognize and support the existence of a profession.
Rather than focusing on “out-newing” online financial planning tools or investment platforms that might bypass you, focus on helping people genuinely solve their short-term and long-term problems. That’s what real professionals do.
Until we focus more on the mastery of knowledge that permits us to do for others what they can’t do for themselves—that really solves the problems they face, rather than simply seeking the newest marketing differentiator—we risk becoming the postage meters in our clients’ lives.