What makes your financial planning firm different from the competition, really?
Is it that you are honest and “put the client first”? Is it that you are impartial, professional and competent? Or, perhaps you value the “work-life balance” of your team?
Not that there’s anything wrong with values like this. The problem is, virtually every financial planner says these things are important to them and are what make them “stand out”.
How can these things make you stand out from the crowd if the crowd is all saying the same thing?
The process of making your financial planning business easy to identify in your clients’ and prospects’ minds is called Differentiation, and it’s hugely important. It can make all the difference between a potential client choosing your service over a competitor.
Yet finding the things that make you stand out is not an easy task. Even then, once you find your differentiators how can you ensure these cannot be easily copied by competitors, therefore allowing you to continue standing out well into the future?
In this article, we’re going to propose some theoretical tools you can use to start discerning your firm’s differentiating features, and also ensure a sustainable competitive advantage.
Let’s dive in.
Laying the groundwork
What we’re going to be looking at here is your “internal marketing environment,” which includes a range of things about your financial planning business including:
- Brand equity
- Leadership style
And more. Essentially, we are suggesting that you view your financial planning business as a collection of assets and resources, which can be used to differentiate the company to your target audience.
This approach is called the “Resource Based View” of financial marketing, and there are a number of models / theoretical tools a financial planner can use to apply this thinking to their own company.
Here are three approaches you might want to use to discern your differentiating features:
Model 1: McKinsey’s Seven “S’s”
This framework was created by Tom Peters, Robert Waterman and Julien Philips at McKinsey in the 1980s. It looks a bit like this:
This approach is highly useful to financial planners who are looking to identify their distinguishing traits, as it shows how a change in one area – e.g. Style – can affect other parts – e.g. Staff and Systems.
Three of these “S’s” are classed as “hard” elements and include Systems, Strategy and Structure. These are usually easier for financial planners to identify within their own business, but it’s often hard to get a sustainable competitive advantage from them.
Do clients really care, for instance, that you have offices in multiple parts of the country?
Maybe, but in most cases probably not.
The other three “soft” elements are Style, Skills and Staff, which are more difficult to identify but tend to be areas where you can get a more sustained, competitive advantage.
Your staff and adviser team, for example, are completely unique and cannot be attained by your rivals from elsewhere.
Model 2: VRIN
VRIN is a tool which financial planners can use to identify the resources within their business which are “Valuable”, “Rare”, “Inimitable” and “Non-substitutable”.
Some of those words are pretty horrible to look at, but they do make sense when you look at it more closely!
Essentially, this framework helps you discern your “sustainable competitive advantage” – i.e. the resources in your business which clients find valuable, and which they would struggle to get elsewhere anytime soon.
Briefly, here’s how the model works:
- Valuable. Does the service or product offered by your financial firm present real value to the client, in terms of relative costs and benefits, compared to alternatives elsewhere?
- Rare. Is your service or resource quite scarce relative to the demand for it in the market, and how likely is this situation to continue?
- Inimitable. Is the resource difficult for competitors to copy? If they can, then even if you are the best at it in the short term, it isn’t a sustainable competitive advantage.
- Non-substitutable. Can a functional substitute easily replace the resource possessed by your financial firm? For instance, could clients easily replace the value of your “human” financial advice with that of a “robo adviser?”
Model 3: Core Competencies
Many financial planners can do lots of things very well. Conducting effective pension reviews, processing data and strong payment systems are all good competencies to have, for example.
Yet are any of them a “core competency?”
A core competency gives you a sustainable competitive advantage. To discern which resources within your financial planning business can be classed in this way, they must each pass three tests:
- Market access. Does the resource/competency in question hold out the potential for your business to create new products or services, which could then be sold in your existing market – as well as in new ones?
- Contribution. Does the competency offer your clients and potential clients something that they find truly valuable, which motivates them to go with you rather than a rival firm?
- Imitation. Can rival firms easily copy the competency in question?
This is not an exhaustive list of the frameworks, models and tools you can use as a financial planner to identify your sustainable competitive advantage. Certainly, however, it should help get you started.
You might want to use one of these three approaches, or all of them. There is no right or wrong way, and their application will depend on your business’s specific needs, goals, makeup and situation.
One thing we hope you take away from this article is to seriously think about what makes you different from your competition.
Are the distinguishing traits which you feel are important – and which you emphasise to your target audience – really all that important to them?
If they do give you an advantage, is this situation sustainable?
For instance, you might feel that your low investment management fee structure sets you apart from the competition. It might well do for now, but could other firms easily match your costs or undercut them?
What about your brand or style? Does this truly make you stand out from the crowd, and if so, could other firms realistically copy it? This one isn’t as easy for rival firms to pull off!
Plenty of IFAs contact us wanting to create a brand which is near-identical to one showcased on our portfolio. Yet to do so would be completely self-defeating. The audience would sense that this firm is not being authentic to their true brand identity, and be put off!