Most retirement plan advisers don't have the competitive advantage that they think they do. While the competitive advantage of those who specialize in retirement plans versus those who do one-off plans has gotten wider, the gap among specialists seems to have gotten slimmer.
It used to be that operating as a fiduciary or using a third-party platform to review the funds was a competitive advantage. Now, virtually all specialist advisers can operate as fiduciaries. And many of the aggregators are creating their own investment review process or partnering with large established providers in this space.
The list of solutions that many of the aggregators and other players can provide are all starting to mirror each other. Certainly, there are differences in the delivery, expense and execution of each of these, but it's safe to say that we're getting closer to parity in the area of the solutions each has to offer.
I believe this is all great news for the marketplace. The trouble is, in a sea of sameness, how can you create a competitive advantage for yourself or your firm? I believe you need to do it through brand and data. One of the best and most recent examples of a company that is executing on these two items is Amazon.
No one is going to deny that Amazon is a juggernaut, but many will argue about the reasons why. My belief is that Amazon has consistently focused on building a great brand and used data to drive better decisions.
I'm not going to focus on brand in this discussion, but my definition of brand is what people know you for and how likable you are. In my opinion, Amazon is now known as the first place people go to buy a product online and it is likable because of its focus on customer service.
Let's dive into the second reason why Amazon has been so successful and why you should also focus on using data more. One example of how Amazon uses data is its Prime membership program.
Many years ago, Amazon noticed that customers who were Prime members were spending significantly more money than non-Prime members. So Amazon focused on marketing the Prime membership. Today there are more than 90 million Prime members who comprise 63% of the company's customers. The average Prime member spends $1,300 per year, versus $700 for other customers.
Amazon just looked at the data it had collected to better understand its customers and then nudged them a little to create a better business outcome. When it comes to your business, what data do you have access to that could allow you to create a similar type of success?
Let's say that you have a wealth management component to your business. One data set you have access to as a retirement plan adviser is which plan participants have or have not completed their beneficiary forms. You could review all the completed beneficiary forms that list a spouse over 50 and invite them to special event with their spouse to discuss retirement planning for couples over 50.
There are a million ways to use data not just to help your business but to help your plan sponsor clients make better decisions as well. The key part is to start doing it.
Many haven't or may not do so, because it takes a lot of work to go through data and distill something that is not obvious to everyone. But that can also be your competitive advantage.
At the end of the day, it is my belief that building a great brand and using data will be how retirement plan advisers create a competitive advantage for themselves against a sea of similar solutions. It just takes work and being a little creative, and you too might be able to build your own mini-Amazon.
Aaron Pottichen is senior vice president of retirement services at Alliant Retirement Consulting.