July 17, 2017

What's a $4 Cup Of Coffee Have To Do With My Business?

The answer is simple: the right client will pay for the right experience. Would Starbucks’ ideal client pay the same $4 for a cup of lukewarm, gas station coffee? Of course not, so why would they pay $4 for a coffee at Starbucks? It’s the same coffee bean, right?  Well, not exactly. They get a steaming hot cup of coffee alright, but in a nice air-conditioned coffee shop, with a good vibe, a comfortable chair, Wi-Fi, and a chance to network with their business associates or friends. In other words, people pay more for an experience they value.  Do you think Starbucks is trying to attract the morning coffee drinker who wants to drink Folgers and read the newspaper in his lazy boy or the plant worker who wants to down some Joe on the way to his morning shift? Do you think Mercedes Benz is trying to attract the average car buyer who just wants to get from A to Z or who wants to leave the smallest carbon footprint? No, both are competing for a certain customer who is drawn to a unique experience; one focused on quality and service and a like-minded community, and not on price.

Having been in this business for 17 years and living in a small town, when I broach the subject of financial planning fees with other advisors I often hear, “well yeah, but that will never work in our city because….(you fill in the excuse here).” The real answer should be, “Well yeah, it will work anywhere, but clients will not pay financial planning fees in the absence of a quality financial plan.”

 A firm cannot compete in the areas of price, quality, and service at the same time.  The economics simply don’t work, forcing you to choose. So as we enter our new DOL rule world and it becomes necessary to separate our fees for planning and advice from investment management, the key will be the quality of our planning and advice.  As an industry, we have chosen to price our services based on investment management, when in actuality the majority of our value to clients is through solving their biggest problems and advising them on the path forward. With the industry changing and the introduction of technology platforms giving the retail investor alternative access to investment management at a reduced price we must begin separating these two services for clients, and at the same time, charge separately for them.

We will have to lead with our differentiator, whether we adjust the look and feel of our office, the knowledge and capabilities of our team members (and ourselves!), the client facing technology or the high-end planning services we provide, the game has changed and we must compete on the quality of our experience and depth of service. The price is changing and not for the better.