Into the Wild Blue Yonder

By Ray Sclafani

April 1, 2006 – In the book Blue Ocean Strategy, authors W. Chan Kim and Renee Mauborgne use the ocean as a metaphor to describe the competitive space in which an organization chooses to swim. Red oceans are the frequently accessed market spaces where the products are well-defined, competitors are known and competition is based on price, product quality and service. Most business organizations operate within this space.

In contrast, there are the blue oceans, where products are not yet well-defined, competitors are not structured and the market is relatively unknown. Companies that sail in these seas have discovered how to stop trying to beat the competition and have focused on developing compelling value innovations that create uncontested market space. Some examples of companies that have successfully navigated the blue ocean are Research in Motion (BlackBerry), Southwest Airlines, Apple, Google and Cirque du Soleil.

The Crimson Tide

But let’s return to the red ocean space for a moment. Does it remind you of something? It should–it’s a perfect description of the financial services arena.

The much anticipated commoditization of financial services is here. No financial services institution has been able to gain a competitive advantage, because each offers the same stuff. Brokerage firms sell mortgages, banks provide financial planning, discount brokers offer investment advice. The list goes on. Moreover, as of Jan. 31, there were 657,692 advisors registered with the NASD.

The commoditization and competitiveness of the financial services marketplace is not expected to diminish anytime soon. So how should you begin to prepare your practice for what lies ahead?

Looking Forward

The good news is that there’s growing evidence that individual advisors are taking positive steps to find and create their own blue oceans–or at least their own blue lakes. You see, each of the financial advisors we coach at ClientWise LLC has top clients who value the individual’s practice and relationship. But even the best advisors recognize that there’s an opportunity to look beyond their top clients as they seek to attract other relationships that are right for them.

While much has been written about the baby boomers and the impact they’ll have on the financial services industry, not much has been written in support of the financial advisory community to prepare the advisor for the transformation of his practice. In that case, let’s consider the following:

* As the 78 million baby boomers approach the end of their working lives, and their retirement becomes real, some studies show that they’re more likely to think about changing to a new financial advisor.

* With the onset of the information glut and the plethora of investment choices available, technical expertise in the financial realm has become more valued. The investor culture is changing from maintaining a do-it-yourself mindset to having an appreciation of the value of a trusted advisor.

* The wealthiest 20% of the population (controlling 85% of the wealth) is becoming better educated about the principles of investing and what it should expect from trusted advisors. For advisors who resolve to build a client-focused practice, this trend will lead to a positive response to the practice by more sophisticated consumers.

Five Key Things about Boomers

In mid-2005, the first wave of the baby boomer generation turned 59. The last of the boomers will reach retirement age in mid-2023. Understanding the core drivers of boomer behaviors and decision-making will provide some key insights into how advisors will need to grow their practices over the next 20 years.

1) Baby boomers are anxious: about their health, their appearance–and, most of all, their future.

2) Boomers will become the wealthiest generation ever. Due to the frugal, hard-working nature of their parents, many of them got a head start and have benefited greatly from a prosperous couple of decades.

3) Boomers are impatient individuals. They don’t tolerate delays and time-consuming processes.

4) Boomers want a discount–or more. Having grown up indulged and protected, they often feel they have a sense of entitlement.

5) Boomers want personal attention and service. They expect to have their products and services customized to fit their preferences. Think Lifestyles of the Rich and Famous for the mass-affluent.

Riding the Wave

In an effort to assist advisors who want to plot a course for the blue ocean, we’ve developed a set of preparation steps to help steer the way. We believe that advisors who complete these steps over a six-month period will be well on their way to uncharted waters.

1) Review and identify the 25 persons who are most important to your practice. Take them out to lunch or dinner. Don’t talk money. Instead, ask them questions about what they most value in working with you. In addition, ask your clients to talk about their own personal networks–of professionals, centers of influence, community leaders, etc.

2) Start a list of the positive feedback that you receive. Similarly, create a list of things that you could improve upon. From these lists, execute one major transformation in your practice within six months.

3) Invest in relationship-building efforts. Get in touch with the contacts gained from your client introductions and invite them to dinner or lunch. The central purpose of this will be to make a connection and gather information.

4) Return to the original select 25 clients and schedule a second meeting. The purpose will be to review the new processes and ideas that you’re thinking about incorporating into your practice.

5) From the information you’ve gathered, identify the “value drivers” that your clients want, need and love. Determine what the core value drivers are or will be. Incorporate these into your unique value proposition, your elevator pitch and the value that you’re offering to the marketplace.

Now, you are ready to create your own blue ocean and prepare for real growth.

Ray Sclafani is President of ClientWise LLC, an organization founded to support the financial advisory practice of the future. Delivering unique practice management strategies focused on client acquisition and retention, ClientWise provides coaching and training for leading financial advisors. For more information, e-mail ray@clientwise.com or call 1-800-732-0876.