Executive Summary
As more and more financial advisors offer financial planning services to clients, it's becoming harder and harder to differentiate from the competition. And with the implementation of the Department of Labor fiduciary rule looming, even more advisors will likely be driven towards offering financial planning to substantiate their value proposition, which will just make the situation even worse.
In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we look at examples of how I have been able to grow my businesses by clearly differentiating in a crowded marketplace. The essence of the strategy is actually remarkably simple: be more specific than anyone else about who you work with, and what you do for them.
The challenge for most financial advisors is a fear that being more specific about who you work with will render you unable to work with most of the people you meet, who don't fit that description. And it's true, that by being more focused, you will not be able to work with as many potential prospects.
However, the whole point of differentiation and being specific about who you work with is that when you do meet someone who fits the description, an instant connection is made, because you've already identified yourself as the single best expert to solve the identified problem that the prospect is facing. And for those you can't work with, the reality is that by being clear and specific about who you do work with, you actually create more opportunities for referrals in the process as well.
In fact, if you look at the businesses that I've created, from New Planner Recruiting (which does recruiting of new financial planners), to FA Bean Counters (which does 'bean counting' bookkeeping services for financial advisors), to the XY Planning Network (helping financial planners serve Gen X and Gen Y clients through the monthly retainer business model), and more, you'll notice the common thread to all of them is being very clear and specific about who we work with, and what we do. The reality is that by doing so, 99% of you will not likely have any need for our services, because it's not a match. But for the other 1% of you, we're the perfect solution. And that's the point of differentiation!
(Michael’s Note: The video below was recorded using Periscope, and announced via Twitter. If you want to participate in the next #OfficeHours live, please download the Periscope app on your mobile device, and follow @MichaelKitces on Twitter, so you get the announcement when the broadcast is starting, at/around 1PM EST every Tuesday! You can also submit your question in advance through our Contact page!)
#OfficeHours with @MichaelKitces Video Transcript
Welcome, everyone! Welcome to Office Hours with Michael Kitces!
I want to talk this week about differentiation.
There's this phenomenon out there, that I've called the "crisis of differentiation" for advisors. And I really do think it's at crisis levels for so many of us who do financial planning. Our differentiator for years has been, "I deliver customized, individualized financial planning advice based on the needs of my clients, and I have these credentials and years of experience." And that's been our differentiator. I think that had a great run, it really was an effective differentiator for a long time. But it's not anymore.
Too many financial advisors are now doing the same thing. For those of us who were early to the financial planning trend, the rest of the world has figured it out, they're catching up quickly, and it just doesn't differentiate the way that it did. And if you go look at your website, objectively, from the perspective of your clients... and then look at some of your peers' websites, I think you're going to realize we all basically say the same thing:
"We're different because we do individualized personal financial planning, customized to the needs to our clients. We have recognized credentials, and we've been doing it for a long time with years of experience."
When everybody says the same thing, it's not differentiated anymore.
How I Differentiated Myself At A Client Event: A True Story
The solution that I find most advisors have been using to address this lack-of-differentiation issue is the exact wrong one.
What most of us do, if we're not getting enough clients coming in, we say, "Oh, no. There's not enough new business flowing in. We've got to cast the net wider so that we can bring in more people and get access to more prospect opportunities." And the problem is that actually makes the issue worse. And I'll give you an example why.
This is a true story of what I did at a prospect event last year, where our firm was invited to speak. It was an event where we were going to talk about estate planning and retirement strategies for a fairly affluent audience - us, and two other firms that are both well-known RIAs in our area, for whom I have a lot of respect.
So we sat down in the session together, and we were all invited to talk about what we do, so we went down the line for introductions.
The first advisor stood up with his microphone, said, "We're from such-and-such firm, we've been in practice for over 20 years now, and we all take financial planning very seriously. We do individualized, customized financial plans to our clients, and then we help them implement it with our unique investment management process, and we have extensive expertise and years of experience." The classic comprehensive financial planner pitch.
Then the second advisor stood up. And he said basically the same thing, "We do customized individualized financial plans adapted to the needs of our clients, and then we help them implement it with our investment management process, and we're a little bit different than the other firm because that firm is a little bit more passive, and we're a little bit more active." And so he tried to distinguish how their investment process was different from the other firm down the line. Which of course was a little bit awkward because it was a session about retirement and estate planning, but he had to say something, or he'd be identical to the first financial planning firm!
And then the microphone got passed to me. And the reality is that our firm is a $1.8 billion RIA, we have a wide range of clients, we do lots of stuff for lots of different people. Like the others, we help them all with financial planning, and we help them all with investment management. But I didn't want to be in the same undifferentiated bucket as everybody else.
So I stood up and said:
"My name is Michael Kitces, I'm a partner and Director of Research for Pinnacle Advisory Group. Our focus is working with retirees, and we tend to work with retirees who are approaching retirement and going through the retirement transition, and need to deal with issues like the timing of claiming Social Security benefits, figuring out whether they've got enough money for their retirement, how to do the actual retirement transition, and then coordinating the liquidation of the retirement accounts and brokerage accounts to replace their paycheck and sustain retirement spending."
I was just trying to paint the picture of how we actually help specific clients go through retirement.
Now the audience in this room was a wide range of folks, from their mid-40s until their early 70s. A wide range of affluent folks. I know the reality is that a lot of the ones in their 40s aren't going to retire for a long time, a lot of the ones in their 70s have already been retired, so talking about retirement transitions and the timing of Social Security elections won't matter to them, because they're not yet retiring soon, or when you're already 72 years old you've already started Social Security.
But that was how I explained my services. Then we all did our session, and we had our talking points about retirement and estate-planning, and the reality was I think everybody gave some pretty good answers, because these were all good financial advisor peers that I know are good at what they do.
And then we got to the end of the event. And at the end of the event, four people came up, they were all in their late 50s or early 60s, and said, "Really interested in your services and what you do. I'm approaching the retirement transition, I'm realizing I need help with some of the stuff that you talked about. Will you give me your business card so I can contact you for more information?" And so I had four people come up and ask for my business card. The excellent firm to my right had zero people come up and ask for their business card. And the other excellent firm, two people down, had zero people come up as well.
Differentiation Is About Making Connections To Just A Few People At A Time
The dynamic that played out here is that the others made their explanation so broad, to reach everyone in the room - there were probably 50 people in the room - that they cast themselves so widely, they didn't connect with a single person in the room.
The first person basically said: "I can do anything for any of you." And that may have been true. But nobody really got excited about it. And then the next person said, "I can do anything for any of you, with an investment process that's a little bit different than the last guy," which no one really cared about because they were here about retirement and estate.
And I stood up and said:
"We work with this specific group of people who are within just a few years of retirement, here are the specific problems that we help them with, and if those are the kinds of problems you have, we'd love to talk to you."
My call to action at the end wasn't quite that overt, but that was the message.
And the reality was only about 10% of the room was actually facing that transition. So when I stood up and I made that statement that we really focus on retirees who are making the retirement transition, have to do Social Security timing decisions, have to decide on the coordination and the liquidation of their assets, figuring out if they have enough, etc., all those issues that come up when you're in the retirement transition, I made myself irrelevant to 90% of the room who weren't right at that transition at that moment. But I made myself so relevant to the other 10%, that almost all of them came up and wanted to talk at the end!
And that's the essence of delivering a message of differentiation. I didn't care that I wasn't going to get 90% of the room because, frankly, I wasn't really expecting to get 90% of the room anyways. My lovely colleagues to my right who went for 100% of the room got 0% of the room. My goal, I just wanted to get a couple of them who might be right at the transition where I have a relevant service to provide for them, and where I thought I could distinguish myself from the others by taking a clearer position.
Don't Fear Being Clear About Who You Serve!
Any of you who follow the businesses that I offer, may have noticed that I actually do this with all of our businesses.
For instance, our recruiting businesses, New Planner Recruiting. Guess who we recruit? We recruit new financial planners. That's what we do. It's right there in the name, on purpose because it's meant to be completely unambiguous. If you're not looking for a new planner, we're not the right fit for you. But, guess what? If you are looking for the new planner, every other recruiting firm just says they recruit everyone, we say we recruit new planners. If your problem is that you need to hire a new planner, who are you going to go to? The generic recruiter who does everything, or the specialist who's sole focus is to solve your problem?
Similar, we have an accounting business for financial advisors, that a number of you already work with. It's called Financial Advisor Bean Counters. Guess what we do? Accounting and bookkeeping for financial advisors. Of course, there are a lot of bookkeepers out there. But we have developed a clearer expertise by knowing how to properly handle downloading and reconciling billing fee sweeps from custodians, and how to structure the typical chart of accounts that a financial advisory firm uses. Every other accountanting firm has to learn that stuff from scratch. Of course, the reality is that it's not that hugely specialized I suppose. Any accountant who's skilled enough could learn it. But we know it from day one, because that's our specialization, so we can help advisors faster and more efficiently, and at a lower cost.
And then our XY Planning Network is the same thing again. We help advisors do financial planning for Gen X and Gen Y clients, and we champion the monthly retainer fee as a viable business model for serving those clients. Now, we routinely get the question, "Why don't you do this for baby boomers as well? Wouldn't this model work for retirees, too?" And the answer is, "Yes, absolutely." And any of you out there that want to make the Boomer Advisor Network and do monthly subscription fees for boomer retirees, you're welcome to do it. Go for it. But we know what our focus is, we know what our specialization is. We want to reach the point that if you hear anything about monthly retainers and you're thinking about working with young people, XY Planning Network is the go-to resource for you. And that's the nature of true differentiation.
Don't Stretch The Net If You Want To Catch More Fish (Or Prospects)
What all of this means is that the key to greater success when prospecting is not to say "I'm not getting enough growth, I need to stretch the net wider." The key to success is if you're stuck and you're not growing as much as you want, you need to bring the net in, you need to focus it tighter.
By analogy, imagine for a moment that I'm holding a net. (Someday, I'm going to get an actual net to show this!) Imagine me holding a net, where I'm trying to catch a bunch of fish swimming at my net. But I'm not happy with how many fish I'm catching. If I take the net and I stretch it wider so I can try to capture more fish, the reality is I'm actually going to catch fewer fish because I'm going to stretch the net so wide the holes will be huge and all the fish are going to swim through. If I actually want to catch something, whether it's a fish or a prospect, I need to draw the net in tighter. You make the holes smaller, you won't hit as many fish, but any that hit your net you're going to capture. As prospects, you're going to be relevant for them, you're going to connect with them. And that's the point of differentiation.
Sometimes I think we make it out to be harder than it actually is. Just approach every opportunity where you're prospecting talking to potential clients with the mindset of saying "I don't want all of you. My goal is to get one in 10. Or my goal is to get one in 100."
As a lot of you that know, the entire business of this blog, Nerd's Eye View, is that there are 150,000 people that come to this website every month, and my goal is to get 0.01% of you to do business with one of my related businesses. If 0.01% of you have a problem that I can solve through one of my related businesses that work with advisors, I will have a successful website. And it's premised on the fact that 99.99% of you will simply use this information for free and not need anything from me!
And that's okay. Because I don't need everybody, nor could I serve all of you anyway! Instead, we simply focus on what we do well, and I just want to make sure that I can capture the people who actually are a good fit for the services that we provide, whether it's the recruiting business, the accounting business for advisors, XY Planning Network, our advisory firm. All of the businesses are built on this basis, of being clear and specific about who we want to reach.
And that's really the key for you, too. If you're trying to figure out how to get through this differentiation barrier, it's about being more specific.
I know for so many of us, we get wrapped up in this idea that, if we get more specific... all we can think about is the 90% of people we'll disqualify ourselves from by being more specific. And we fail to realize the astronomical increase in how many people you're going to get when you are specific. Because you make yourself so relevant to that target group you make an instant connection with them.
Creating Specific Connections Equals Business Opportunities
When I was giving my introduction at the beginning of this panel event, and I said that I was the specialist in retirees making the transition, I could see two or three heads nodding up and down, and scribbling notes, right when I said it. I actually saw one guy elbow his wife and point at me when I said it, and I could see the guy was in his early 60s, and they clearly were facing the Social Security timing issue. So when I said, "We help people with the Social Security timing decision," I made an instant connection. And that was one of the people who came up and asked for my business card at the end.
It's about finding those connection points to the people you're trying to reach, and not fearing what happens if I don't get 90% or 95% of the people. It's about what happens if I only talk to 5% or 10% of them, but I close half of them or I close all of them. If you close 100% of the next 5% of the people you meet, for most of you, that would be an astronomically higher close rate and a better new client rate than what you're getting right now, by trying to be everything to everyone and meeting tons of prospects that you don't do business with.
There's even a sales psychology aspect to this as well. When you tell people no, when you give them that kind of specificity, when you create an air of exclusivity around who you only work with, it actually makes people want it more. A 
Now, that doesn't mean I do it as a pitch to say, "Hey, I only exclusively work with so-and-so," and then when you say you really, really want it, then I capitulate and give it to you. It's about being so specific that when I actually say no to you, that what you walk away with is, "All right, I guess I can't work with that guy." But what you're going to remember is I said "no" to you because I only work with so-and-so instead.
And if you ever meet one of those people, you're going to refer them to me, because I've ingrained in your brain that this is the kind of person that I work with. And if you ever meet anybody that fits the description, I become the natural referral target. And that, again, is part of differentiation and how differentiation actually drives referrals! When someone says "Hey, work with my advisor, he or she is great," no one gets excited about that. When someone says "Work with my advisor, he can help you with the Social Security decision you guys are going through right now because he worked with me and helped us with ours and it was great and he knew exactly what to do." That's a much more actionable referral. You've made yourself more referrable.
Be More Referrable For More Actionable Referrals
Those are the kinds of referrals I'm trying to create amongst the clients that we work with. Being specific, so that it drives more referrals, which drives more action. When I position myself as the retirement transition expert to help with the Social Security timing decision, I'm only going to be referred to a handful of people who are in are early 60s and facing the Social Security timing decision. But I will be a magical fit for those folks, who have that exact problem, and we provide the solution at the exact moment they need it!
So recognize this dynamic around differentiation. It doesn't have to be as hard as we make it out to be. It's about recognizing that you shouldn't think about the number of people you won't be able to do business with when you focus. Instead, think about the incredible close rate you can have of the people that you will connect with when you are clear.
Because as human beings, we respond to those touch points? When I say I specialize in Social Security timing decisions and you're going through a Social Security timing decision, you say "that's the person for me." And that's the nature of being clearly differentiated.
So I hope that's helpful. It's just some food for thought around how to differentiate more effectively, and how to change your mindset. The biggest issue by far I see for most advisors trying to do this, it's the mindset of letting go of all the people you're not going to reach and focusing on the ones that you'll succeed with and recognizing that that's the path forward.
So, again, I hope that's helpful food for thought, thanks again for hanging out with us for Office Hours With Michael Kitces. I was here today in lovely San Francisco at the St. Regis, speaking for Pershing Advisor Solutions. We try to do this every Tuesday at 1:00 PM East Coast time, though unfortunately we were a little bit late today because I was actually on the podium speaking when I would normally do Office Hours! But, again, I hope this is helpful. Thanks, everyone, for joining us and we'll see you next week. Take care.
So what do you think? Do you struggle to differentiate yourself from other financial advisors? Is it because you're casting the net too wide? Are you fearful to get specific because you're worried about what you'll miss out on, instead of focusing how it will help you succeed with those you do specifically target? Please share your own thoughts in the comments below!
Excellent piece Michael. Look for some Jersey Shore Fish Net in your mail box!
Tom,
Happy to be of service.
And pardon my ignorance, but is a Jersey Shore Fish Net delivery a good thing, or a “don’t open your mailbox” thing? 🙂
– Michael
Michael, I have been trying to work around this “differentiation” conundrum and am glad to come across this article today. I have been attempting to wrap my head around a business plan lately but could not shake the Jack of all trades description to express value to my target audience. I couldn’t see why it bothered me until this piece spotlighted how such a generic explanation of yourself really amounts you to being a king of nothing. It finally dawned on me that in the short time I have been helping people getting their lives together, I do have a set of skills honed toward for a particular group of clients. Thank you for that.
Hi Michael, excellent article! Do you, or any other readers, have any thoughts around how to differentiate for new clients without alienating existing clients who I want to keep but don’t fit the description of new clients? Thanks!
Stephen,
We create a different name and website for each business segment. For example, we have Boomer clients just like you, but we also are attracting Millennium clients through our alphamint.com website.
Thanks for the reply Rob. That’s a great idea! There’s a few regulatory hurdles to overcome this side of the pond but nothing that’s insurmountable. Thanks again for your reply. Best wishes.Steve
Stephen…. Some people will be alienated and there isn’t much you can do. Others who are not your ideals will be attracted to your differentiator anyway because they see you as the expert in something. Even though my site screams “financial advisor” my firm continues to attract owners who work with advisors and owners who have -0- to do with the industry. Then it’s up to me to be honest with those I can help and those I cannot help.
Great article. This also applies to social media where most advisors seems to “talk to the world” and spread generic articles (mainly corporate stuff).
Advisors should be clear about who they serve and 1)find them in social 2)focus on these people and try to maximize the level of interactions they have with these specific prospects.
Best