The Decision that Will Determine Your Success
Historically, the key to attracting clients was telling your story in a compelling fashion. Going forward, being articulate and persuasive will still be important – but not as important as having a differentiated and compelling story to tell in the first place. In fact, only those advisors who offer truly differentiated value to clients will be successful.
In my recent article, Why Successful Advisors are Exiting the Business, I discussed the accelerated change taking place and the resulting competitive pressures on advisors. As a result, the old rules that drove success will be replaced by a new set of rules.
I’ve started to see more and more advisors focusing their practices to address the hot buttons of a narrowly defined client group:
- Advisors who have become experts on complex pension plans and benefit packages of major employers in their communities. As a result, they are able to provide a unique depth of expertise … and have a great story to tell.
- Advisors who concentrate on the unique financial and emotional needs of widows. Because of their focused expertise, they have a compelling story to tell to recent widows looking for help. Along similar lines, other advisors have focused on serving women in upscale communities who divorce after long marriages.
- Advisors who focus on business owners in narrow segments (owners of automobile dealers or fast food franchises, for example) or who concentrate on owners of mid-sized businesses in their 50s, 60s and 70s looking to exit. As a result, they have industry-specific conversations that advisors who target more broadly can’t match.
Going forward, your most important decision will be the clients you focus on. More than anything else, advisors who flourish will have the discipline to narrow down their choice of who to serve and how to serve them.
From generalist to specialist
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Until now, most advisors have been generalists …. meeting with retirees in the morning, business owners at lunch and couples planning for retirement in the afternoon or evening. That mirrored other professions – most doctors, lawyers and accountants were generalists.
Now specialists are the top-paid practitioners in every profession. And this doesn’t just apply to the classic professions. If you look at Travel Weekly’s list of America’s largest travel agencies, at the top you see online powerhouses Expedia and Priceline, each with sales north of $50 billion. The other members of the top five all focus on corporate travel, led by American Express Global Travel in third place. If you look hard enough, you can still find successful independent travel agencies, but they target narrow segments like seniors travel, cruises or adventure travel. In the travel industry, unless you have massive scale, it’s tough to be a generalist – and only getting tougher.
There are three main factors driving the financial industry’s shift to specialization:
First is the move by many advisors to go beyond investment advice. When all you’re offering is investment advice, the needs among clients don’t vary greatly. If you have two 60-year old clients with a similar income and level of savings, chances are their investment objectives and needs will be quite similar. Go into broader financial advice, however, and you start seeing a bigger difference in their needs.
Second is the growing complexity of the situations in which many affluent clients find themselves. The more complex a situation, the more room for someone with deep, specialized knowledge to add value. The only way you can offer deep knowledge is to narrow your focus in terms of the clients with whom you work.
Finally, the competitive reality is that consumers intuitively gravitate to specialists, equating specialization with greater expertise. Generalists do just fine as long as they’re only competing with other generalists – but when a specialist enters the scene, generalists often struggle to compete.
The academic argument for specialization
Four years ago, in Harvard's #1 Strategy Guru on the Key Decision for Your Business, I outlined the research that underpins the case for specializing. Below is an excerpt from that article:
For your business to thrive, you shouldn’t compete to be the best. Rather, you should compete to be unique.
That was the key message delivered at a talk by Harvard Business School’s Michael Porter. The author of 18 books on strategy and six-time winner of the award for best Harvard Business Review article of the year, Porter is the undisputed leading voice on competitive strategy and positioning.
He had an important message for financial advisors.
Porter began by addressing the flaws with the goal of being the best, a notion popularized by former General Electric CEO Jack Welch, whose dictum was to exit any business in which GE couldn’t be a top-three player in market share. Porter presented a different view.
The notion that you have to be the best comes from the worlds of sports and war, where there is one winner. The problem with that “winner take all” mindset is that the field is littered with the losers, with only one winner emerging.
In Porter’s view, a better analogy comes from the performing arts, where you can have many outstanding entertainers and actors, each building his or her own distinct audience. By having multiple performers thriving, they expand the total audience as a result.
And he pointed to retailing, where it’s possible to have successful companies as different as Walmart and Costco on one hand and Tiffany’s, Hermes and Coach on the other. The thing that successful retailers have in common: They have homed in on a distinct audience.
Porter used IKEA as an example, a company on everyone’s list of retail success stories. But Porter hates IKEA – he hates the inevitable long drive to get to their stores, the huge parking lots, the unending winding trek inside the store with no ability to cut it short, the lines to pay, the trek to get the furniture home and then the hassle of assembling it. If it was up to him, he would never set foot in IKEA again.
But when his daughter was a university student in Washington DC, she loved IKEA – whenever he visited her during his trips to Washington, she asked him to rent an SUV so that they could make an IKEA run for her apartment. Porter’s point: IKEA isn’t concerned in the slightest that he hates shopping there, because he’s not its target consumer. What IKEA cares about is that it’s put together a unique value proposition that appeals intensely to his daughter and her friends – because they’re the audience it’s targeting.