Thriving in a bifurcated economy: Services versus stuff

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Most financial products are commoditized; what differentiates advisory firms is the way they deliver those products

There’s a lot of discussion lately about the disparity between the haves and have-nots, whether it’s about the wealth gap, with the top 1% controlling nearly as much wealth as the middle and upper-middle classes put together, or the separation between developed nations, which control most of the world’s financial resources, and the developing world.

We can see a very similar situation unfolding in the business world. Why do “new economy” technology firms receive higher multiples than “old economy” companies that live in a different world of single-digit multiples. Are there any lessons for financial services firms, and in particular independent wealth managers?

Services versus stuff

Yes, it’s true that many of today’s winners are tech-focused. But just as importantly, most of them present themselves as services companies, rather than being in the business of selling products.

We’ve seen legacy consumer product companies make efforts to move away from “stuff,” as they see that growth slow, and instead focus on “services,” sometimes through those gadgets. Many “old world” companies are now using this principle to reinvigorate their businesses and expand their growth.

So how does this apply to financial services? What should you consider if you are an independent adviser and want to thrive in the new services economy?

• What you sell. Most of us deliver a financial plan, perhaps a portfolio of ETFs or individual stocks. The products themselves, like most “stuff,” are commoditized.

There’s not a huge difference between an Android phone or an Apple phone. The same is true about the financial plans you create and the investments you provide compared to those of the adviser across the street.

You differentiate yourself through the way you deliver those products: how accessible the delivery is, how personalized it is and how much it changes and evolves with your clients. Great firms understand the way we “service” is where growth and profits are determined.

• Relationship as platform. Most successful firms understand that once they have a relationship with you, they can deepen their relationship by giving you more of what you need. Take a look at Amazon Prime, the Apple ecosystem, Salesforce.com or closer to home, Envestnet and Orion. They all understand that in order to stay relevant to their clients, they need to keep expanding their relationship in depth and breadth.

That mindset is seldom seen by independent wealth management firms. You need to be thinking about how you keep expanding services beyond a financial plan and investment portfolio. Perhaps it’s tax prep, insurance or estate planning, or banking. People want their lives simplified. How much are you evolving your platform to expand and deepen your relationship with clients?

• Repeatability and scalability. Some firms have created scale in their investments by putting together discretionary investment models; fewer have considered how to create scale by streamlining the flow of data to reduce service time in updating new plans or onboarding new clients. Almost none are thinking about how to create a repeatable and scalable client experience.

Can a client self-onboard? Can the client have the same experience regardless of which adviser they work with in your office? Are they able to amend their plan without speaking with you? Are you connected to their mobile-based life? The future growth and profitability of your business depends on how you answer these questions.

It’s not what you sell, it’s how you sell it.

Take a look at what’s happening in fast food. We’re all buying mostly the same stuff from fast-food restaurants that we always have, but the way we are doing it is evolving. They are using the same principles as the “new” economy firms to expand and deepen relationships, broaden their audience, create a more personal experience and drive up profitability.

It’s how they try to ensure they are on the right side of the split economy. Those of us providing financial advice should think the same way if we want to be on the right side of this bifurcated world.

[More: What the end of iTunes teaches us about winning new clients]

Joe Duran is CEO of United Capital, a Goldman Sachs company. Follow him at @DuranMoney.