4 Steps to Avoid the Commoditization Trap (And Justify Your Fees)
Water is water, right? Everybody selling water is in the business of selling H2O. If anything was a hopeless case for commoditization and price collapse, it should be bottled water. Most cities in America can now deliver very clean, safe water right to the tap – at 0.0025 per gallon.
But bottled water companies like Waikea, Fiji, Aquafina and Desani have been tremendously successful in branding their products, affiliating themselves with target markets, associating themselves with positive lifestyles, creating a positive customer experience, and getting a premium price. Customers pay between 400 and 4,400 times more for bottled water than they do for tap water, and the premium water market continues to grow.
Financial advisors face a similar dynamic: Technological innovations like robo-advisors, such as WealthFront, and do-it-yourselfer tools like Financial Engines, SigFig, JemStep and others are forcing advisors to find new ways to deliver value and justify their fees. But successful advisors across the country are finding ways to add value for clients and command respectable fees for doing so.
The ones who can’t won’t be in business very long.
Don’t Sell ‘Tap Water!’
A few years ago, advisors could often make a very good living just putting together a diversified investment portfolio and rebalancing every 13-24 months – all for 1% AUM or the standard broker’s commission.
That might keep some old clients on the books out of inertia. And there are many advisors living off their past efforts. For now. But if that’s your only offering, you’re not going to bring in much new business.
Because if that’s all you do, you’re selling tap water! With today’s technology, any old advisor can do that. Or no advisor at all. Customers don’t need you for that. They can hire a robo-advisor for 25 basis points or less, buy a few index funds according to a computer-generated portfolio recommendation, and that’s that.
Computers are also making it very easy for do-it-yourself investors to do tax-loss harvesting and re-balancing.
But as advanced as today’s technology is, even the best robo-advisors and discount brokers have a hard time thinking strategically. They can’t pick up on what their customers are thinking but can’t find the words to say. They can’t draw out relationship dynamics to get at the nut of a financial issue.
But you have to take steps to differentiate yourself from the discounters and robo-advisors. Here’s how.
#1. Develop your soft skills.
For example, at your initial meeting, show the prospect that you’re a great listener – and that you understand the problems and concerns that make your offering unique.
If you listen, the prospect will give you the information you need in order to show them how you can add value – for them.
#2. Translate services and features to benefits.
Sell the sizzle, not the steak. Everybody and his brother offers “investment management,” “portfolio management” or “retirement income planning.” Visit 50 of your competitors’ websites, and you’ll see these words on 80% of them.
That’s fine. People search for those terms, and with a little search engine optimization, you can get your share of inbound web traffic from them.
But those services and features, by themselves, don’t translate into clients. To get clients willing to pay a premium fee, you need to show value by explaining the benefits of working with you.
- Maximize after-tax income.
- Guaranteed income for life.
- Understand market events.
- Guidance through times of economic crisis and uncertainty
- Protect your assets from threats.
- Eliminate worry – no matter what happens to the markets.
- Be able to afford college for your children.
Another way to do it is to show that you solve specific problems that your prospects have. For example:
- Assistance with 401(k) rollover decisions.
- Assistance with key Social Security and Medicare decisions.
- Help with restricted company stock and stock options.
- Advice on windfalls and inheritances.
- Manage required minimum distributions.
- Reduce current and/or future income taxes with timing and asset location decisions.
#3. Sell proactivity.
Many of these people have a decent grasp of tactics, but little grasp of strategy. And so they often find themselves scrambling to find information or guidance on a financial topic way too late. Their approach is reactive, not proactive.
For example, recent retirees often get smacked in the face with a tax on Social Security benefits – and only then start looking up how to reduce Social Security income taxes. But it’s too late: The real planning opportunity to reduce income taxes on Social Security and other forms of retirement income was over the past several years, via the use of Roth IRA conversions and municipal bonds, and creating the freedom to put off taking Social Security until full retirement age.
As a professional financial advisor, you are able to anticipate problems that may occur years in the future – before the client even realizes the threat – and provide individualized, specific and actionable advice that saves the client many thousands of dollars. It also justifies your fees many times over.
#4. Stick to your guns.
Anybody trying to offer personal financial advisory services at a discount price is effectively saying to the public that there are no differences between advisors. You are essentially valuing your years of work, training and experience at zero.
That hurts you – and it also hurts your clients, because with rock-bottom fees, you will not be able to spend the time and resources necessary to take care of them!
Don’t try to discount your fees to match a discount provider. It’s a never-ending battle, and as an individual advisor, it’s one you can’t win. Brooks Brothers isn’t in competition with Walmart. And you shouldn’t be duking it out in price wars with low-value, low-cost providers.
If you’re delivering a quality service, and the prospect just can’t see the value in it, politely thank them for their time and move on. Let them go to Walmart. You go find yourself a Brooks Brothers client!
Join Don Connelly for a day and let him help you differentiate yourself and build your own identity. Clients cannot replace you if you are irreplaceable.
Call 941.346.1166 for discount pricing for multiple Advisors attending from the same branch. Need more info before committing? See event details here.