“Innovation” and “delivering advice” do not usually go together do they?
The way advice is delivered by tens of thousands of professionals tends to gravitate to the same methodology. There is safety hiding in the herd, right?
The type of advice delivered by tens of thousands of professionals tends to gravitate to the same ideas, products and theories….most people ARE influenced by what most other people are doing, and want to do the same after all.
But why does it have to be this way?
And how can an adviser truly stand out as being different to the mainstream? Or stand out within a particular niche of the market?
To answer the “why” question; in part it is because well meaning regulators and professional standards developers come up with “standards” that define how and what “good” advice should look like. That becomes THE PROCESS which must be adopted, and in a very short time the entire industry is wondering why financial advice is seen by consumers as being a bland “meh”thing.
Funny that. Advice IS a bland thing usually. It is about creating safety for consumers more than anything else.
Let’s take Modern Portfolio Theory mixed in with a bit of Dollar Cost Averaging via Mutual Funds as a quick example (and I know I’ll get sent to hell for saying this). I have dealt personally with thousands of consumers and probably well more than a thousand advisers during my career, so while my observation is empirical perhaps I do believe I am working with a decent sample size here.
I haven’t met anyone who became fabulously wealthy by drip-feeding a proportion of their pay packet into a managed fund and spreading their risks. Not one person.
Sure, there are plenty who have built up a good sized portfolio or estate and are comfortable – but that is a different thing to being truly independent isn’t it? However, I do know or have met quite a few fabulously wealthy people over the same time and have observed that they typically have not subscribed to the dollar cost averaging idea, or using managed funds, or even the whole MPT thing. They became fabulously wealthy and truly independent by concentrating their risks. By focussing relentlessly on rental property investment for example, or building a business, or becoming superb equities investors….the examples are endless, but the common thread is the same: They did something different to the conventional thinking. As a result, they built extraordinary lives for themselves.
I have observed the same pattern with advice businesses – and been absolutely guilty of it myself.
We find out what the rules of the game are (best practice standards, plus the rules and regulations applying to us), and look at how the industry is comfortable with generating revenue (what is the “norm”), and then try to find the consumers who like safety and hiding in the herd and turn them into clients.
So the standard business formula for an advisory firm looks like:
A couple of observations before I go further though:
- the above model will be a workable business that can satisfy a large number of consumers
- it works for shareholders and stakeholders of the advisory firm
- it is safe – relatively speaking
So it has its merits, and is a viable method of building an advice business which can profitably meet the needs of its constituents.
But not every adviser wants their career defined that way.
Not every consumer wants bland and safe.
The most interesting, challenging, demanding, lucrative and valuable clients an advice firm could have do not gravitate to this model.
To begin figuring out how to innovate in delivering financial advice as a commercial service we do have to ask the basic question:
“Why does it have to be this way?”
There are often reasons – such as regulations – that prescribe a certain thing must happen in a certain way. For instance; we have a rule which says advice must be delivered in writing, so delivering advice in a written format is “must”.
But to innovate we need to move beyond what is a “must” and figure out
“How would it work ideally?”
We might then come up with an answer such as “for our target market clients advice needs to be captured basically as a podcast“. Delivering advice digitally, and orally, yet still in a recorded format which can be provided as evidence of suitability later might be the answer that most aligns the consumers expectation with our competency and todays technology and communications methods.
In order to be “compliant” we might then back that up with a written transcript which is delivered electronically to the client – knowing and expecting that nobody but an auditor or regulator is ever going to look at that written transcript in time to come.
The “secret” to innovating as an advice firm is to understand three things, and then figure out how they overlap or intersect. The three things to understand which unlock innovative thinking are:
- What is desirable?
- What is do-able?
- What is profitable?
The first is about focussing upon the end-user – the client. What is it they want? How do they want things to work? What do they value? What wows them? What are their expectations? Basically…..what do they desire?
The second is more technical, or pragmatic, in focus. What is physically possible? Does the technology exist, or how can it be used? How could we use knowledge or technology if we were not restricted in how we married them up? How could we do faster, better, leaner, more personalised, more fun, more useful, more timely….more anything….what is actually feasible in todays world with what we know and what we have or can access?
The final question is the limiting one: can the fabulous concepts be done profitably? You might have a great and empowering idea that would attract every billionaire on the planet as a client of your firm…such as they get Warren Buffett personally managing their money and talking to them personally each week. But can you afford him? And still make a dollar for your own stakeholders? Or maybe you should just hologram yourself into a meeting virtually…..or hey! maybe we should hologram Warren Buffett in?
…but if that technology cost $3,000,000 to implement and the turnover of your firm is $500,000 per year, then maybe it is not a good innovation after all….or maybe it is a good innovation but the cost of the technology is just too steep right now. It is perhaps an idea for the future….
When re-thinking how your business could work, or how it could deliver the type of value that your ideal target market clients want, don’t let the final question regarding profitability stifle you. Good ideas can be good ideas whose time simply has not come yet – but don’t lose the good idea. The profitability question really serves as a checkpoint on which ideas to run with now.
To achieve breakthroughs in how a practice works, or perhaps redefine how an entire industry works, requires that we challenge all the basic assumptions to begin with. It is that challenging of the status quo, asking “why does it have to be this way”, which leads us into innovative thinking and potentially seeing the business future an entirely different way.
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