Executive Summary
As Wall Street firms continue to struggle, beset from all sides by a waning public image, financial uncertainties, numerous regulatory battles that could drastically change their business model, and an ongoing defection of brokers and clients, the independent financial planning community continues to grow. In fact, within a few years, Cerulli predicts that wirehouses will no longer be the largest financial services channel. Yet at the same time, an increasing number of financial planning practices are not only taking business away from traditional wirehouse firms, but proactively focusing client attention on it with every media article that discusses troubles on Wall Street, to emphasize how their firm is different. The challenge, though, is that by trying to differentiate from the Wall Street firms by talking about their problems, we don't actually elevate ourselves - we remind clients of the trust problems in the financial services industry. The end result - celebrating the decline of Wall Street wirehouses may actually help to drag us down with them!
The inspiration for today's blog post is the recent New York Times Op-Ed column by Greg Smith, featured in last week's Weekend Reading column. Smith was a Goldman Sachs executive director and head of the firm's United States equity derivatives business in Europe, the Middle East, and Africa. In the article, Smith explains why he has chosen to resign from Goldman Sachs - suggesting that the firm has lost its client-centric focus, simply rewards people who make the firm the most money, and has too many "morally bankrupt" people in positions of leadership. Smith notes how some of the firm's leadership refer to their own clients as "muppets" (not the Jim Henson characters, but a British slang term for 'idiots', as Smith was located in the London office) to be manipulated and taken advantage of. Smith did not suggest that Goldman Sachs is engaging in illegal activity, but that "people push the envelope and pitch lucrative and complicated products to clients even if they are not the simplest investments or the ones most directly aligned with the client's goals... Every day, in fact." Smith's very public resignation letter created a furor, with over 3 million pageviews of the story in the first day or two alone.
In the two weeks that have followed, I have heard numerous stories of financial planners proactively sharing the story with their clients, either by relaying the NY Times Op-Ed article directly, or by writing about the incident to highlight it in their own words. The basic message is: "See, those Wall Street firms are horribly conflicted and do terrible things to their clients just to make a buck; isn't it great you have an unconflicted, objective, client-centric advisor like me?" To which all I can say to our collective financial planning world is: Give It A Break.
When did it become so accepted - or even, popular - to celebrate other people's problems and dance on their graves? Why is it considered a good thing to kick the competition while they're down? If we were talking about situations where an advisor was competing head-to-head against a Goldman Sachs advisor for the same client, I at least can 'sort of' understand highlighting the Greg Smith article, to raise the question in the client's mind about whether Goldman in particular is the right firm to work with. But that's not what we're talking about here. We're talking about our planning community going out of its way to point out, emphasize, and celebrate the problems at another firm, that their current clients didn't even have a connection to in the first place, just to take advantage of an opportunity to bash the competition for not being fiduciaries.
As I've written in the past, while I believe that being fiduciary and client-centric should be an absolute regulatory minimum for providing advice to clients, a focus on fiduciary is a terrible marketing strategy. Talking about how other firms are not fiduciaries does nothing to reinforce your value proposition with your clients. It just makes you look petty and desperate as you denigrate the competition by implying that they're morally and ethically inferior to you. Sharing articles like the Greg Smith Op-Ed with your clients and prospects, who don't even have a relationship with Goldman Sachs in the first place, represents the epitome of bashing the competition.
In fact, it's worse than just bashing the competition. I fear that "celebrating" the Greg Smith Op-Ed with clients and prospects actually further damages the public's trust in financial services. Because the reality, as the RAND Study and others have shown over the years, is that the average consumer doesn't understand all these differences between brokers and advisors, the fiduciary and suitability standards, Wall Street vs "independent" firms. They look at the financial services industry in the aggregate. Which means when we go out of our way to point out problems in our industry, we just remind people how untrustworthy our industry is. Including us.
Now, I know what many of you may be saying - "But Michael, I'm sharing this with clients to help show them how I'm different than Goldman Sachs and those Wall Street firms. I'm trying to differentiate myself." The problem is, it doesn't really differentiate you from the problem. It actually connects you to the problem.
Think of it this way: Imagine I'm talking to my client, trying to differentiate myself from an elephant. For instance, I explain, I'm not a huge, lumbering beast. I don't walk on all fours. I don't have big floppy ears. I don't have leathery, grey skin and a long, grey trunk that I use to feed myself grass. After this extensive conversation with my client about how I'm not an elephant, I ask my client what they're thinking about. The answer: they're not thinking about me, they're thinking about AN ELEPHANT. Because the conversation I had didn't paint a picture of me and what I do; it painted a crystal clear picture of an elephant in their mind while I explained all the ways I'm not an elephant! How can they not think about an elephant now? Have you ever tried to not think about an elephant? Go ahead, try it; try NOT think about an elephant.
Now, try not to think about questionable financial advisor who takes advantage of clients. Don't think about how they make inappropriate recommendations for personal gain. Don't think about how they reward themselves more for what they sell than the quality of their advice. Don't think about how they actually refer to their clients as idiots, or talk about how they can rip someone's eyeballs out trying to make money more. Instead, think about me and how I'm nothing like that. You know what the client is thinking about at the end of that conversation? Not you. The client is thinking about how dishonest financial advisors are.
Which means the bottom line is that highlighting articles like Greg Smith's Op-Ed with your clients does not enhance your clients' trust. It actually subconsciously (or sometimes consciously) damages the trust your clients have in financial advice. Because you can't paint a crystal clear picture of advisors who try to "rip eyeballs out" to make a buck while referring to their clients as idiots, without raising the idea in your client's minds that maybe the problem isn't totally isolated to Goldman Sachs. Maybe the problems happen at other firms, too. Maybe it could even happen to them, someday, working with your firm. It's doubtful, to be sure; but remember, you may be the one who raised that doubt in your client's mind by bringing it up in the first place!
The bottom line is that if client-centric financial planners want to take the advice market away from Wall Street firms and other conflicted business models, the best way to do it is just to do such a fantastic job for their clients by acting in their interests, that they win the good old fashioned way: by just being better. In fact, as I've discussed in the past on this blog, it appears this is already happening, as fiduciary financial planning approaches the point of dominating the entire advice industry, and the wirehouse model continues to lose market share at a rapid pace.
So focus less on talking about how the competition is inferior, immoral, and inethical, and spend more time focused on simply BEING better than the competition. Your clients will thank you for it. They'll probably tell their friends, too.
Michael–thank you. I have felt for years that the independent community spent too much time talking about how those “other guys” were not trustworthy. I have never felt that saying someone else is not trustworthy builds trust in you–in fact, I believe it does the opposite. Thank you for expressing it far more eloquently than I have ever managed.
I do not celebrate the failures of my competition, however I do celebrate the failures of an unethical system. As fee-only financial planners, we are tied to wall street because so many from our ranks came from theirs. I however do not view their service as competitive to ours, and the only reason I can see that someone might believe it is a competitor is because they have been so unethical in the description of their services that the general public has no idea what they really do.
I celebrate full disclosure, and would do so even if it meant shining a good light on wall street. This is an instance however where the light was bad.
Unless you’re soliciting a client directly from a Wall Street firm, I don’t see the tie-in at all. Otherwise, you’re PUTTING inethical Wall Street behavior into your clients’ heads – which naturally makes them wonder about you, too.
If your service offering is better, DO it. There’s still no need to talk about your competition – or worse, talk about people you already acknowledge are not even competition in the first place.
You don’t make fee-only planning look better by trying to push other people down below you. You make fee-only planning look better by BEING above them.
– Michael
You are assuming that clients (and prospective clients) don’t already make the connection. Wall street firms have made sure that their service appears in direct competition with fee-only firms.
And on another note, I believe it is incorrect to assume that people do not benefit from being negative towards competition. Political research has shown the benefits of running a negative campaign. I’m not saying it should be the cornerstone of a fee-only firms marketing strategy, but I would be interested in seeing research that makes your assertion that negative marketing is worse than positive.
Alan,
Feel free to Google “marketing by bashing the competition” – there’s any number of discussions out there explaining why it’s problematic and what it really says about the person doing the bashing.
Especially since in this case, it’s not even about bashing the SERVICE the company provides. It’s bashing their ethics and morals and making it personal.
And if clients and prospects ARE making the connection, the LAST thing I would want to do is EMPHASIZE the connection by talking about it more.
Regarding the political context, there is actually much debate on the value of negative advertising. There are some studies that have suggested that while it motivates your EXISTING supporters, it actually alienates those on the fence, makes them more distrustful of the political system, and less likely to turn out at the voting booths at all.
In other words, mudslinging only reinforces with those who ALREADY agree with you. For those on the fence, you can still do much more harm than good.
– Michael
A continuing on yseretdays Rating news.On Monday that Standard & Poor had put the “A minus” rating with assessment to downgrade further on Greece. Yesterday the rating agency Finch downgraded Greece from “A minus” to “BBB plus”. Since the European central bank ECB have adjusted minimum rating from A minus to BBB minus during this financial crisis as the minimum requirement in accordance with the European Stability Pact, what consequences is there of not having control over its own debt? If Greece doesn’t meet with the ECB standard, no worry, ECB just lower its standard and welcome Greece once again…But as this lowering of standard is only temporary from ECB’s side, what domino effect could a Greece debt default have and what will happen if they get kicked out of the Economic and Monetary Union?A side note, isn’t it funny how they value national debt from excellent AAA to poor C or D and lower… if US as a triple A nation has an excellent debt then what do poor debt look like…?
Someone should probably let Apple know that all those millions of dollars they spent bashing PC’s in their ‘I’m a PC’ commercials did nothing to increase their market share by kicking Microsoft while they were down. If they really wanted to be successful, they should have spent 100% of their marketing dollars simply advertising how good their product is and not wasted money pointing out Microsoft’s colossal Vista failure. Who knows how successful Apple could have been if they had simply stuck with a self-focused, 100% positive strategy????
After that, maybe we should tell Wendy’s how wrong they went with that whole ‘Where’s the Beef’ campaign in the 80’s too??? Looks like somehow they recovered since they just moved past Burger King into the number two fast food spot.
If only we could somehow convince all politicians in the upcoming elections how much more likely the would be to win if they spent 100% of the time talking just about themselves and never anything negative about their opponent.
The beauty of our industry is that we all get decide for ourselves how to best position and market our firms. And if that involves some sort of fair and accurate compare and contrast to others I see nothing wrong with it. For those that want to stick to a 100% self-focused, positive approach I see nothing wrong with that either. But that’s for each advisor/owner to decide what they prefer and what works best for them and their business. Only time will tell which side of the argument prevails in this case.
Thanks for writing the post Michael. Even when I occasionally don’t agree with your position, I very much appreciate your well thought out and articulated points.
Keep up the great work of continuing to move the industry forward.
Neither Microsoft nor Wendy’s made personally directed attacks against their competitor’s morals or ethics.
There’s a *HUGE* difference between focusing on your competition’s PRODUCT, and focusing on your competition’s MORALS and ETHICS. Wendy’s said they gave their products more beef; they didn’t say Burger King was trying to cheat their customers. Apple made the point that their products are easier to use; not that Microsoft was trying to cheat their customers.
If we actually merely got around to arguing about who gives better advice and solutions for clients – similar to the Apple/Microsoft commercials or Wendy’s “Where’s the Beef” – WITHOUT debasing ourselves by alleging that the competition cheats their customers, it would be radically more constructive than the hole we continue to dig for ourselves by eroding the public’s trust.
– Michael
Thank you for sharing your thoughts. I really appreciate your efforts and I am waiting for your next post thank you once again.
Process is as much a product as a marketable security in the advisory business. The fiduciary issue is only about morals and ethics if you choose to make it about morality, as in hooking it up with the Goldman debacle or any number of daily SEC sanctions. Excluding outlaws and various thieves, the fiduciary issue is not about morality, it’s about process. There’s noting wrong, indeed much right, in educating clients and the public about the process of planning and investing and how the fiduciary standard fits into the spectrum of interests and activities that financial advisors (brokers), agents, dealers, and financial information providers present. That commissioned sales people who used to call themselves brokers now routinely use the umbrella of advisor as their title argues that this effort can be useful and important to clients, and not merely an excercise in mudslinging marketing. Guess it depends, like so many things, on how you actually go about it.
It seems to me this discussion has become nothing more than an exercise in determining the line of appropriateness of when a planner has gone too far/crossed that line. Like you, I decided also not to forward the NYT article to my clients, or ‘dance on their graves’ as you call it. You make the case above for why your line is where it is, which you have every right to do. However, by implying that those who may have chosen to send the NYT article to their clients are damaging the industry they so dearly love is where I think you may have crossed the line.
Bryan,
Indeed, generally speaking, to each their own on their marketing. They can live or die by their own success.
However, if my marketing approach was “don’t trust all CFP financial planners, they’re all cheats, except for ME” you’d likely have a problem with it. As you should, since I just implied pretty directly that you cheat your clients.
Except the point I’m making here in the blog post is that sharing the NYT article and talking about the problems of Wall Street ‘advisors’ IS bashing all of us financial planners. Because consumers have been crystal clear in communicating, in the RAND study and others, that they don’t understand the internal differences WE draw in the industry, and lump us all together. When we say “look at what those bad Wall Street advisors do to their clients, don’t trust them” what consumers hear is “look at what financial advisors do to their clients, think twice about trusting any of us.”
So yes, simply put, I do find people sharing articles like this are damaging the industry “they so dearly love”. No, I don’t think they’re doing it intentionally or maliciously, but it’s happening nonetheless.
Pointing that out, of course, was the point of this blog post! So I hope those who are serious about rebuilding trust in ‘the industry they so dearly love’ instead of dragging it down further will consider better ways to advance the value of financial planning we’re all trying to communicate here!
– Michael
Hey Michael,
It is question of becoming specialist and having a contradictory view on the same matter.
Being simple,humble and honest with direct approach to client’s financial problems and helping them to get a clarity is really a difficult task. No one is concerned to beat our own ego and self assassination behaviorism.
Order of the day has shifted from market driven and firm driven complicated products to simple and easy to understand solutions. it is huge responsibility to match our goals and align with client’s goal.
Hope we would take stride on becoming more holistic and client centric.
Thanks
badarish
Michael,
I googled “how to invest if you don’t trust Wall Street” and on the third page of search results I found your column here about not bashing Wall Street.
http://tinyurl.com/8ybz82e
Not the guidance I was looking for. 🙂
Glad I could “help” Mike. 🙂
– Michael