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Staying Relevant

by Vern C. Hayden, CFP®


Vern C. Hayden, CFP®, is president of Hayden Financial Group LLC in Westport, Connecticut, author of Getting an Investing Game Plan, and contributing editor to TheStreet.com.


Darwin said survivors are those who can adapt to change most effectively. General Eric Shinseki more recently said, "If you don't like change, you will like irrelevance even less."
 
One of the most significant changes in our profession over the last 30 years is the commoditization of so much of it. Commoditization takes place when there is a dilution of our differentiation and competitive advantages in favor of a mass market, with pricing determining behavior.
 
In other words, "Why should I pay a CFP practitioner to do retirement projections at $350 per hour when I can go to the T. Rowe Price Web site and do it for nothing?" Multiply the same essential question with respect to other quantitative issues of financial planning. The planner's own Web site probably links to any number of sites that do number crunching, etc. The more these capabilities exist, the less relevant we become—if that's all we do. In the early days of financial planning (1970s and 1980s), a significant part of our value was related to our ability to crunch numbers and do projections. With the advent of easy duplication of quantitative tasks, that part of a planner's value has been considerably reduced.
 
The more planners attempt to mechanize and institutionalize the qualitative part of a client relationship, the less relevant their services will become. Technological advances, because of their potential for dehumanization, must always be subordinate to a successful personalized client relationship, especially relating to qualitative issues. The proper use of technology, including the wonderful advent of cloud computing, is the miracle that frees us up to do the really important things with a client.
 
In the following two cases, I don't intend to do an entire case study, but to make only enough points to demonstrate the importance of emphasizing the subjective and qualitative issues in a successful client relationship. In the process, I want to show how to differentiate you from perceived competition while answering the question, "How did we get these two prospects to become clients?" So while it is critical to differentiate yourself based on non-quantitative issues, the focus on "wisdom and experience" type issues magnifies the potential of obtaining new clients. Both of these cases are classic David slew Goliath stories—the small, boutique financial planning firms vs. the big banks, Wall Street firms, and insurance companies. I hope the examples show how to differentiate and de-commoditize, albeit in an environment where all institutions and planners seem to be using the same language. All names of individuals and institutions have been changed.

Example 1

Mr. Smith, age 85, was referred primarily for investment management. He had about $14 million in investable assets with one of the largest banks in the country. He had been with that bank for five decades. Half the money was in an airtight marital trust that couldn't be moved, and the rest he controlled. He had already decided to move the money he controlled out of the bank. The reasons were:

  • The bank was losing money at a significant rate (beginning of 2008).
  • The bank would not listen to his concerns and therefore would not reduce risk.
  • The bank would not make any changes in the investments. His money was in a model "blue" portfolio for people with his risk tolerance, as determined by his answers to a risk questionnaire. They said that from a historic and academic perspective it will always work out and that it's important he "stay the course." The fact that he was losing sleep over his losses was irrelevant.
  • The bank had not offered to do any financial planning. This included the critical aspects of estate planning and tax planning.
  • The bank had considerable disruptions in its organizational structure.
  • There had been a frequent change of personnel.

Taking all this into consideration, it was obvious the bank had created a self-destructive process in working with clients. Here are the reasons Mr. Smith gave for becoming our client and leaving one of the biggest banks:

  • We listened and understood what his situation was.
  • We tailor made a portfolio to meet twin objectives, safety of principal and income. We repositioned traditional asset allocation to a simple concept of offense and defense, with a core anchor.
  • We researched and objectively resolved several planning issues. This was perceived as added value.
  • We tried to simplify complex issues.
  • We introduced him to an estate planning attorney who found several defects relating to his will and trusts and corrected them. This would save over a million dollars and ensure that his estate would be properly distributed.
  • We introduced him to a CPA, who has provided excellent service.
  • We did total planning and discussed the big picture, not just investments.
  • We had very productive meetings with family. Especially his son-in-law and three daughters.
  • We developed an interactive relationship and rapidly responded to inquiries, phone calls, and e-mails.
  • Overall we created the perception of giving great service and being responsive. Much of this service was given before it was expected.

Example 2

The second case involves a 74-year-old man who was also leaving his investment managers. He had three managers with a total of $21 million, and was referred to us in the fourth quarter of 2009. He said he wasn't paying much attention to his money until he discovered how much he had lost in early 2009. Prior to being referred to us he had in-depth interviews with three of the best known institutions on Wall Street. They all put significant pressure on him to hire them. They all used questionnaires to determine which asset allocation model to use with him. They all had colorful charts and impressive binders for presentations. They all had big clients and billions of dollars under management. The situation he was presented contained a mixture of commoditized service and institutional jargon and methods.

Here is how we were able to get him as  a client:

  • We used an intensive team approach.
  • As we went through a detailed discovery process, we found some action items that we resolved immediately. He said, "That's fantastic, no one ever offered to do that before." In other words, we rendered great service before he expected it.
  • Each member of the team tackled specific tasks. No one had done that before.
  • We simplified his entire somewhat complex situation by summarizing it on one page. He loved the fact he could look at his entire situation so easily. The Goliath companies never did that.
  • We suggested he keep one of his existing managers, who was doing an outstanding job in the bond area. We said we would monitor the performance without charging an extra fee. None of the others had suggested that. The others wanted all the money.
  • We explained how the overall financial planning process worked and that we would be coordinating with his other professionals as needed.
  • In our third meeting with him he said, "When I first met you I didn't see myself doing business with you, and you were at the bottom of my list. Now that I see how you work and the great job you have done already, you have gone to the top of my list, right over those three other well-known firms. That is actually amazing!"
  • Early in the relationship, we pointed out that with the other firms he would be lumped together with numerous other wealthy people and wouldn't have a unique relationship. With us, he would be unique and communication would be very personal and frequent.

To Sum Up

Our success is dependent on three critical issues:

  1. The skills you have. Today, those skills must include the ability to emphasize your value in the non-quantitative areas of clients' lives.
  2. The demand for those skills. Most people are looking for competency and trust in a financial planner. Along with referrals, a planner must be able to help create demand for his or her services through public relations and marketing strategies.
  3. The degree of difficulty in replacing you. Many, if not most, institutions have lost credibility and trust with their clients and the public. Consequently, they have lost a lot of clients to planners like you and me. We have to make it very hard to replace us once they become our clients. It is a daily challenge to maintain that position. This is why it is mandatory that we deliver our services in a manner consistent with the expectations we created at the beginning of the relationship. Delivering quantitative information is a given. The qualitative will make the difference in a client's life and in the success of our business.