The Value Proposition of Financial Planning

Daniel YergerFinancial Planning 2 Comments

In business school, you’re taught a lot of things: business plans, marketing, managerial accounting, and so on. One of the most important things that does not get enough attention is the “value proposition” of a business. Simply put, the value proposition is the core reason someone would do business with you rather than doing business with someone else. Sometimes that answer is simple: For the only gas station in town, the price of gas is the price of gas. But when there’s a Dunkin and a Starbucks across the street from each other, the value proposition can be as personal as “I’m a Starbucks guy” and impersonal as “Dunkin is on my side of the street on my way to work.” Whether you’re thinking about a value proposition in terms of a business or in terms of your own professional capabilities, a value proposition is critical to doing business, whether as a service provider or in getting the job you want. Today, I’m going to use my own practice as the example of a value proposition, highlighting where it’s uniquely valuable and in some places perhaps less so.

The Value Proposition of Fee-Only

At present there are 157 “Financial Advisors” in Longmont, CO. Of those 157, only thirteen are CFP® Professionals, meaning that they’re qualified to offer financial planning services. Of those thirteen, only five work with firms that offer financial planning services (the other eight are qualified but it’s not something that they provide for clients). Of those five, three make their money by selling investment products, investment services, and insurance products as a result of financial planning; in other words, a financial plan for those three firms is a limited scope process designed to help identify the right investment or insurance product to sell to a client. Of the remaining two, one works with a firm that accepts third-party payments, and one doesn’t (guess who!) Looking at that breakdown, that means that for someone seeking financial planning, out of the gate one hundred and forty-four of the one hundred and fifty-seven aren’t qualified to offer it. Of the thirteen that are qualified, only five provide it. Of the five that provide it, three are in the business of using a financial plan as a sales tool. Of the two that provide financial planning on their own, only one doesn’t accept payments from third parties.

That last point is actually quite important. You see, third party payments involve a split of revenue to the financial planner’s firm, but also can include a concept called “shelf space”, in which the firm limits the options a planner or advisor can recommend to clients only to those investment and insurance companies that pay to be “on the shelf”. For example, I’ve seen a program in which there were over 300 funds available, including an S&P500 index fund. The fund was offered by a major investment company, but cost 28 basis points (.28%) as opposed to the market average of 4 basis points (.04%). Why the 7x price point? Because the company was paying 20 basis points to the advisor’s company annually just to be allowed as an option for advisors to recommend. So if an advisor wanted to recommend a low-cost passive index fund based portfolio, they were only going to be allowed to recommend a version of those funds that cost seven times as much as what a fee-only planner would recommend. The harmful impact of these shelf space arrangements is well documented in a study by Dr. Nicole Boyson of Northeastern University, who found that shelf sharing arrangements reduce client returns by several percent over a lifetime, which can add up to tens or hundreds of thousands of dollars.

The Value Proposition of Locality

Not to say that saving a couple of percent over a lifetime is the be-all-end-all, but there’s something about local. Of all the firms located in Longmont, CO, every single financial planning firm other than MY Wealth Planners® is a national company based in the Midwest or the East Coast. While there’s nothing wrong with being based out east, this remains a valuable point for many consumers: They want to support their local economy. When fees are paid to a financial advisor with a publicly-traded company, those fees are ultimately more likely to end up in another town’s economy or in the pockets of executives and shareholders. When fees are paid to a locally founded and local-only firm, the vast majority of those fees are going to end up recirculating in the local economy. This matters more to some and less to others, but it’s a point of differentiation that literally no other financial planning firms share in the area.

Above and beyond local dollars comes local service. There are many fee-only firms in the country (a few thousand), the majority of which are small independent practices with a minority handful measuring in the tens or hundreds of planners. Regardless of which is the case, many firms are virtual-only. In other words, you can only meet via Zoom, GoToMeeting, or another remote option. This has become much more normal over the past year with the pandemic going on, but the rush to in-person meetings has been overwhelming this year as vaccinations have picked up. No less than two dozen people have sought out MY Wealth Planners® specifically because they could meet in person and “look the person I’m entrusting my life savings to in the eye”; while there are many consumers who don’t care about that personal touch, the ability to meet face to face holds enormous value for some and likely will for years to come.

The Value Proposition of Rarity

In case you haven’t noticed, there are more letters following my name than in my name. Not to undermine the point, but there are over 200 sets of professional credentials a financial planner can pursue and add to their title. To be blunt, only ten to fifteen percent of those credentials are worth anything at all, but of those that exist, there is value in the rare specialization. For example, breaking down the expertise our credentials bring to the relationship:

MBA: Approximately 1 in 163 Financial Planners & Advisors

CERTIFIED FINANCIAL PLANNER™ (CFP®): Approximately 1 in 4 Financial Planners & Advisors

Chartered Financial Consultant (ChFC®): Approximately 1 in 8 Financial Planners & Advisors

Accredited Investment Fiduciary (AIF®): Approximately 1 in 48 Financial Planners & Advisors

Certified Divorce Financial Analyst (CDFA®): Approximately 1 in 72 Financial Planners & Advisors

Run the math on those figures and it comes out pretty quickly that the odds of working with someone who has their Masters in Business Administration, is a CERTIFIED FINANCIAL PLANNER™ Professional, holds their Chartered Financial Consultant Designation, is an Accredited Investment Fiduciary, and is also a Certified Divorce Financial Analyst is 1 in 2,253,312. Given that there are only approximately 363,000 financial planners and advisors in the country, that means you can find a literally unique form of expertise with MY Wealth Planners®. That expertise is valuable for some and totally irrelevant for others, but for the clients, we want to work with and those who need our help, it’s invaluable. Of course, there is also the option of firms that claim to have specialized expertise…

The Value Proposition of Non-Niche

One of the most common phrases you’ll find on a financial advisor’s website is: “We specialize in professionals including doctors, lawyers, business owners, individuals, families, and women.” If you’re not already laughing, let me spoil the punchline for you: “We specialize in everyone.” While some advisors have gotten the message over the year that saying you specialize in people with a pulse isn’t exactly a target market, many have taken that message in a bad way. Niche specializations have come up over the past few years as a popular marketing tool for financial advisors, but not in a good way. You see, there’s a difference between a Niche Specialization and a Target Market. In Boulder County, an incredibly valuable niche specialization would be “Specializing in the tax treatment of Indian-American immigrant professionals, helping them move assets from India to the United States” or “A specialization in start-up equity compensation and stock options”. Those are specific and hard-to-find skillsets that a competent financial planner could provide real value to a specific niche of clientele with. However, most “niche” specializations to this day are really just “target markets” in disguise. For example, a firm will advertise its specialization in “Doctors”. But other than having high levels of debt in early career and high levels of income throughout their career, there is literally nothing special about doctors as a profession that requires specialized financial planning knowledge above and beyond what any competent CFP® Professional can provide.

All of that background to say: MY Wealth Planners® refuses to “niche”. As the only fee-only financial planning firm in Longmont, were we to say we only worked with doctors or only worked with software developers or something to that effect, we’d be telling the public that they’re out of luck. They’re literally going to have to choose a non-local company, or work with a planner, not from the area, or roll the dice and hope that a product salesman who’s qualified in financial planning will guide them the right way and not steer them into a high commission or shelf-space revenue sharing product. By remaining a firmly generalist firm, it’s in our mission to remain committed to providing high-quality financial planning to the public.

Is it the right value proposition?

Well, that’s a subjective question more relevant to the person or business offering the value. There’s an expression in sales: “Price is only an issue in the absence of value.” For example, if someone is looking for a top-tier day trading firm that specializes in algorithmic high volume trading, my firms’ value propositions, good as they are, aren’t appropriate for that person. In any case, one has to determine whether their value proposition is best aligned to the customer, client, or employer they’re offering to do business with. All the value in the world is only so valuable based on the needs of the audience!

Comments 2

  1. Impressive Mr. Yerger. Happy to be onboard and trusting my retirement to My Wealth Planners! I appreciated the Niche education.

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