You are what you charge for. If you charge for undifferentiated stuff, then you are in the commodity business. If you charge for physical things, then you are in the goods business. And if you charge for your actions, for the things you do on behalf of the client, then you are in the service business.
Goods and services, while not commodities in definition, are bought and sold as commodities when there is little or no differentiation. In other words, when you are buying a good that you are not emotionally invested in, you’ll pay as little as possible for it. I will pay a lot for bib pants for skiing because I am passionate about skiing. But I buy jeans for $25 on sale at Old Navy, and when I can, I pay even less.
Companies lower the costs of their goods and services all the time. In the financial services industry, fund companies like Vanguard, who are pioneers in low-cost investing, have made no secret that they will continue to lower their fees, and other companies are joining them every day. This is great for investors but not so fantastic for the people who get paid on the fees the investment firms are charging.
Commoditization isn’t new, and it isn’t the end of the world, but it does mean that just like always, you are going to have to innovate and shift a little bit. You have no choice. Unless you want to compete on price, you have to start to think about what comes next. What are your clients really looking for? What do they value? What’s missing? Where do they need help?
What if you charge for the time your customers spend with you? If you did that, you’d be in the experience business. What if what people paid for was your support in achieving their life goals? Fee-based investing has always struck me as a membership, where members pay 1% on all of their assets to belong to a club from January 1st until December 31st in any calendar year.
Isn’t being fee-based charging for time? I think so, although too many advisors treat it as a flat fee for actions (services) done on behalf of the client – the buying and selling of investments and advice and counsel.
I think it’s smarter and easier if instead of thinking of your fee as the cost for services, you instead considered it a cost of membership.
The offering, goods and services (investments and advice and measurement) are commoditized and will continue to pay less over time. Not only that, while important, investing isn’t interesting, although I am arguing that it ought to be, and that this is where the future of the financial services industry is going and where the opportunity is today.
Help your clients become something else. Figure out what they are trying to transform into, who they want to be, and focus your energies and effort there. Partner with them, guide them, support them and help them achieve their inspiring vision of success. Not one-dimensional financial success; think in much bigger terms.
The value you bring isn’t the investments. There are plenty of people and algorithms that can do that and are willing to do it for less than you.
Make working with you an experience. The investments and services are just the offering. You know they can get the same offering everywhere, but what they can’t get anywhere but from you is your experience. Your perspective, and your desire to share it. Your value is tied to who your client becomes as a result of working with you.
This commitment, this experience cannot be commoditized, and people will line up for it. They will pay a premium for it, and they will feel connected to it. They won’t be able to live without it, and they will share it with people they care about.