How Can Advisors Persuade Investors To Pay For Their Services: Financial Advisors' Daily Digest
By SA Gil Weinreich :
Maks Financial Services offers some business-building advice for his fellow advisors, specifically offering ideas on how to differentiate one's practice via non-run-of-the-mill investing practices. I'll leave it to advisors (and, as always, interested DIY investors) to evaluate those ideas by clicking here to read the article .
But I would venture to say that one point is unassailable - namely, that advisors should seek to differentiate their practices because today's investment services are so highly commoditized (i.e., readily available and cheap).
That is to say, the investing public would not automatically have reason to assume there is value in hiring an advisor - or at least in hiring any particular advisor who is reaching out. Because before you can say "free seminar," an investor can find an inexpensive trading vehicle, plus numerous free resources compiling data, analysis and opinion on investing options (the best being SA, of course).
Thus, advisors have the unenviable task of somehow communicating why investors should pay for something they could obtain at de minimus cost, while simultaneously making the case for paying this advisor and not one of the innumerable others plying that same trade.
That's a tall order, but I won't leave you hanging. I'll offer my thoughts on it, and ask you to please suggest your own in the comments section. After years of contemplating this issue, I believe that the way to pull this off is for the advisor to demonstrate that he or she has the wisdom, experience and judgment to a) navigate the obstacles toward financial independence and b) make up for the investor's deficiencies in this area.
SA commenter "varan" makes essentially the same point in a comment on yesterday's digest , though his spin is negative. Writes varan:
…with most of the financial information and methodologies/software required to make wise investment decisions available at the click of the mouse, the only way for the financial advisory industry to survive is to characterize the intangible and the subjective as the most important, useful, and indispensable service that it provides, and to make the individual investors very afraid that without the advantage of such a service, that sucks up the investors' wealth at the paltry 1% per year, their portfolios are going to die.
My own positive spin is based on the knowledge that for all too many investors, compounded losses through imprudent decision-making is a fate that feels deathlike. It is not uncommon for people of a certain age, who know they can no longer make up for such losses, to experience crippling depression. What do you think?
Herewith today's news and views for advisors. (Note the first three items lend support to the idea that investors are their own worst enemies):
- Kevin Wilson: Clients who insist on taking maximum risk at market tops are "so common that it is actually the norm."
- Cullen Roche: "Aggressively engaging in the pursuit of alpha tends to result in worse performance, higher risk, higher fees and higher taxes."
- John P. Reese: Study finds that "shortsighted" investors are too quick to switch fund managers .
- Ian Bezek makes peace with low, future expected returns .
- Book review: AllAboutAlpha discusses the shale/fracking revolution and investment implications.
See also Short-Term Bond Funds Vs. Prime Money Market Fund on seekingalpha.com
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.