Executive Summary
The Financial Planning Coalition is fighting the advocacy fight for a fiduciary standard for financial planning. While this certainly is a consumer-centric direction for financial planning, the firms today that practice financial planning may need to be careful about what they wish for. After all, for many firms, the fact that they operate as fiduciaries has become a central message of their marketing to prospective clients.
So what happens if the Coalition wins the fiduciary fight? If everyone who practices financial planning must operate as a fiduciary, do a number of currently successful firms lose their key marketing differentiator and have to rewrite a new marketing plan?
The inspiration for today's blog post comes from ongoing discussions I've been having with a number of financial planners about the longer-term implications of the ongoing fight for fiduciary financial planning. As highlighted earlier this week in the blog, I think that while winning on fiduciary would be good for consumers, it would actually increase the number of firms directly competing to deliver true financial planning services, because more firms will be required to compete in the profitable financial planning business directly if other business models are regulated out of existence. But a natural extension of this challenge is that not only might there be more competitors... it might also be harder than ever to differentiate.
In today's world, many "true" financial planning firms differentiate themselves by communicating that they follow a fiduciary standard in serving their clients, from planners under NAPFA to the Garrett Planning Network to the Alliance of Cambridge Advisors. From focusing on fiduciary directly, to highlighting a fee-only compensation model that is meant to support fiduciary, the fact that not everyone currently practices financial planning in this manner allows many firms to direct attention to this as a significant differentiator. The fundamental underlying message - "You can trust me, I'm making recommendations in your interest, and I'm willing to adhere to a legal standard that enforces it" - is attractive to many prospective clients tired and wary of the current advisory marketplace.
Yet what happens if the Coalition and other fiduciary advocates win the fight for fiduciary, and anyone and everyone who holds themselves out as a financial planner must genuinely practice as a fiduciary? For many of the currently successful firms who operate in this space... they lose a key differentiator from their competition. In a world where everyone who practices financial planning is a fiduciary, firms will have to find some other way to attract clients. This is paralleled in other professions, as well; although I certainly expect my doctor to act in my interests, having a doctor who proudly states that he has taken the Hippocratic Oath to practice medicine ethically is just not meaningful in today's world when every other doctor has taken the same oath!
So how will financial planning firms compete in the future? To say the least, they'll have to compete by other means. Some will highlight truly advanced expertise in specialized areas. Others will focus on a particular niche. Some may seek to create a local community or media presence. Many, though, will just struggle more to attract new prospective clients and persuade them to pay for services as the marketplace becomes more competitive.
In the end, many of the planning firms that advocate most passionately for the fiduciary standard are also amongst those who use fiduciary as a key differentiator in their marketing. Yet while I believe it's a wonderful step forward for consumer, I fear that for a few such firms, they need to be careful what they wish for. The fiduciary world we're creating may ensure better advice for consumers, but it may make the landscape for financial planners more difficult than ever to compete, differentiate, and succeed.
So what do you think? Will the creation of a fiduciary standard impact how you market and communicate to your clients? If everyone is a fiduciary, does that make marketing messages about being fiduciary, fee-only, etc., a moot point in the eyes of a client? Will fiduciary firms have to re-focus their marketing to survive in a wholly fiduciary world?
Michael,
I think this is another really insightful post. For me it speaks to the larger notion that “marketing” and “differentiation” as it’s practiced among advisory practices generally, is in the dark ages and will need to substantially evolve for many to survive the increasing competition.
The notions of marketing automation, analytics and metrics that are so common in other industries are almost non-existent among planning practitioners, yet it may be these disciplines which determine survival.
Thanks for another great post.
The possibility that we will not have to spend time differentiating ourselves by who we truly represent really excites me. When we tell someone we are a financial planning firm, they automatically assume we are crooks. We then have to spend time explaining the fiduciary standard,in order to differentiate us from those that have taken advantage of people. This time would be much better spent explaining our services. If we can get to the point that a person can walk in my office, and it be a given that I am a fiduciary, I will be able to spend time really explaining what we do in a way that is more likely to being them on as a client.
According to a NAPFA staff member, fee-only as a compensation model does better the more fee-only planners exist in a city. Meaning, when every prospective client knows the advantages of the fee-only compensation model, fee-only planners can stop spending all of their time explaining how they get paid, and instead explain their service. I think this will carry over into what you are talking about Michael.
Michael:
This is a good topic. However, financial planners should not be concerned about a possible change in regulations because a lot of consumers are blind to the difference between fiduciary versus non-fiduciary, so a change in regulations may not really affect the marketing campaigns of a financial planner. I think that fee-only advisers tend to serve a certain type of client who has enough emotional intelligence to understand fiduciary financial planning, so if all firms are someday required to become fiduciary those intelligent consumers will still be able to discern who are quality planners versus who is an insincere planner.
When passed, like just like providing excellent customer service, having this or that certification, etc. it won’t be able to be used as a tipping point differential in regards to how they may market. It will become the “norm” and the norm doesn’t hold a high place when it comes to marketing.
Marketing smarter takes into account a firm’s niche, ideal client, core values, manifesto/beliefs etc., culture, and what they bring to the table that is unique, different, or special.
I also think that it will be more surprising, maybe even shocking to clients that fiduciary standards have not been the “norm” all these years.