Since writing our newest paper, Growth by Specialization, I have gotten some pushback from advisors who reacted poorly to the suggestion that they need to be differentiated. One email came from someone who quoted one of my own practice management heroes. He said something like, “very successful orthopedic surgeons are not typically differentiated, they are successful because they are very good at what they do; that is, they produce excellent outcomes.”  

While true in theory, let me suggest that I think he is completely wrong — especially as we go forward.

My knee and a painful lesson in specialization

About 6 years ago, I was having major pain in my right knee. After sitting for a while (especially on long flights) I could barely walk. I thought my running days were done and I was very depressed. The first doctor I saw suggested physical therapy for what she diagnosed as a slight tear in the meniscus. The second doctor, looking at the same MRI, suggested surgery. I opted for the surgery. Six months later, still in pain, I was referred to a knee specialist who, after 10 minutes of conversation, suggested that both the PT and the surgery were a waste of time and money. My patella, due to my age, was not “floating anymore” (my words) and we needed to do a “lube job” (his words) on my knee. One shot 6 years ago and I am still running almost daily. 

Doctors specialize, but should you?

So, what does this have to do with differentiation of an advisory business? Let’s look at the similarities:

  1.  A specific issue requires a specific expert. I had a specific issue to deal with, so I did not go to a general practitioner. As we have said in many posts and papers, today’s consumer is trained in the e-commerce model. They can expect personalization and customization in almost every transaction. They have access to everything and are no longer limited by zip code when shopping.  I wanted specialization — an orthopedic doctor.  As investors are researching more and asking friends for referrals, they are seeking out answers to specific questions about taxes, retirement, college funding, divorce specialists, etc. 
    • While all 3 doctors that I saw were specialists, only one specialized in only the knee.  Because his practice focused on knees, and he had seen my issue many times, he was able to diagnose quickly and suggest treatment. With focus, he built up a specific knowledge and processes to achieve an excellent outcome. While financial planning is a multi-disciplined business, processes and knowledge for small business owners, widows, millennial IT workers, employees with equity compensation or stock options can be created to a create a more consistent and a better client experience. 
  2. I’m not a doctor, but I can describe what was happening in my knee and how it was fixed. Most clients don’t tell their friends, “I need a financial advisor.” They usually describe the problem or challenge they are going through. As friends, we try to help solve that problem – referrals come from one friend helping another with specific issues or challenges. 
    • Would I refer a friend who is having trouble with their knee to a generalist, even one that says they have excellent outcomes? How about to someone who is in orthopedics, again even if they say they have excellent outcomes? No, I would send them to the person that helped me with a similar issue.  If a friend asked me about minimizing taxes on stock options awards or what a recently widowed woman should do with her investments, I would refer that friend to the specialists too.

Why lifestyle financial advisors should differentiate in the future

Some predict advisory firms in the future will fit into three categories: the mega firms, the digital providers and in the middle, the lifestyle practices. The mega firms are the large AUM, multi-practitioner entities that have the scale and resources to provide advice and product to HNW and ultra HNW families. At the other end, the digital providers (think virtual firms) deliver limited (basic) planning for the masses at a low cost entry point. 

suit in futureThe challenge, to me, for the lifestyle firm of the future is to stand out and deliver real value. To offer general financial planning — the digital providers will be driving down the cost (today it seems to be 30 bps or $300 a month as an example) — which will drive many general financial planning lifestyle advisors out of business. The mega firms will “out resource” the lifestyle firms, especially with the ultra-high-net-worth families. But they still won’t beat a specialist, as their model, by design and by scale, has to appeal to a broader audience. The lifestyle practice, squeezed by the cost of the digital providers and the scale of the mega firms can win but they have to be differentiated, they have to be specialized. 

So when I get pushback from advisors saying that successful orthopedic surgeons that are not typically differentiated, my response is this: “Yes they are differentiated from almost every other medical professional. Whom do you want working on your knee —a specialist or a generalist? And whom do you want working on your financial future? 


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