by Alan Smith, CEO Capital Asset Management
In 2004, Facebook had only just been launched, YouTube didn't exist and the first iPhone was still three years away – it seems like a different world to today. In financial services, platforms were still in the very early stages of development, low-cost index investing had yet to gain traction, and only a small handful of progressive financial planners were using technology to provide cash flow modeling.
I myself spent much of my time researching for good products and actively managed investment funds to sell to clients in return for a commission payment. I didn't have formalized planning, nor a lot of ongoing service.
Looking ahead, Moore's law suggests that the speed of technological change doubles every two years and we can't begin to imagine what life will look like in 16, 10 or even 5 years from today – just that it will be very different.
Core parts of what currently makes up an adviser's value proposition are going to disappear. The first one to go is investment management. If you don't believe me, run a chart comparing your own client portfolios or that of your discretionary manager of choice to that of Vanguard Life Strategy, available for 22 basis points and going lower – they days of paying ten times that are clearly numbered
What's clear in other industry sectors aside from financial planning is that the incumbents who dominated their sectors fought hard to protect the status quo rather than embracing the change and using their market-dominating positions to positive effect.
Why didn't the London Taxi Association build their own version of Uber rather than blockade city hall? What about, Addison Lee, which was the biggest private hire taxi firm in the country worth hundreds of millions, and now looks to be heading for bankruptcy.
Why didn't the hotel industry create Airbnb? Why didn't the biggest retailers on the planet launch their own version of Amazon or the biggest music companies create their own Spotify?
Instead they missed the trend of change, and I am going to bet that the incumbents in the retail investment management industry are going to completely miss the tech-enabled opportunities over the next decade.
All these examples show that of course people still need the same services: travel, music, accommodation. They just obtain these services differently now. These examples also show that customers don't really care about who delivers the service, so long as its' good value, low effort and solves a problem.
Imagine you were told that you had a very rare and potentially critical disease. There is one leading medical expert for treating your disease based 1000 miles away. What would you do? Make an appointment and travel there of course.
When you find out that the medical fees are quite expensive, what would you do? Shop around, choose another generalist doctor who is cheaper? Probably not, because only one doctor can deliver this important value.
Uniqueness and specialization will ensure the success of financial planning firms in the 21st century. If you offer financial planning and investment advice on a typical IFA fee model you are no different from dozens of local firms.
However, if you solve the specific challenges of your ideal perfect client and are the only firm that does so, you will have plenty of prospects keen to hire you and will face no fee pressure. This is what a bulletproof 21st-century client value proposition is about - being clearly differentiated.
When discussing legendary rock band The Grateful Dead, music promoter Bill Graham said:
They're not the best at what they do, they're the only ones that do what they do.
We all need to strive for this.
For example, many of our clients are entrepreneurs in the creative and media sector. By spending time with them and asking lots of questions we have a deep understanding of what their main issues and concerns are and have been able to build a value proposition to address them.
The biggest challenge for our entrepreneur clients is a lack of available time to deal with multiple moving parts of their financial ecosystem that are essential but time-consuming. So, we partner with specialist accountants to keep them tax compliant and lawyers with deep expertise in creating the right structures to protect business assets both pre and post business sale and exit.
We take the lead, hold joint meetings, keep the communications flowing, and make sure that all advice is seamless.
These clients have business assets, cash, property, all outside of traditional retail investment products but still requiring advice and guidance. They often have concerns about aging parents and intergenerational planning where business assets are involved.
So, we package a full suite of services, under our brand and act as the ‘conductor of the orchestra' – we let them know that we are the experts in working with clients like them at the intersection of business, money, family, and life.
It's expected that the next decade will create more than all of last century's wealth. I'm not convinced that our future clients will drive to our office for a cup of tea and a portfolio review and pay 1 percent of their wealth for the privilege.
It's time to think differently, identify where our value really exists and create a powerful and unique service model for the next few decades.
Alan Smith is the founder and CEO of Capital Asset Management, one of the UK's leading firms of independent Chartered Financial Planners. From their origins as a small, transaction-based IFA, Alan and his team have grown the business into a modern, profitable, boutique firm, delivering lifestyle financial planning services to a growing client base of affluent families.
