The Challenge Of Describing Your Unique Value by Dan Solin

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In a recent article, Michael Kitces made a compelling case against trying to be the lowest cost financial advisor. Instead of competing on price, Kitces recommends trying “to improve your differentiation by focusing on a niche or specialization, such that clients will focus on your unique value instead of comparing you to others on price alone!”

On the surface, this is sound advice. But implementing it is a challenge for advisors. Here’s how to price your services in a way that reinforces your value proposition.

Unique Value
Image source: Steven Depolo – Flickr
Unique Value

Underestimating the threat

It’s difficult to argue with the quality of advice from robo-advisors like Wealthfront, whose investment team lists Burton Malkiel as its chief investment officer and Charles Ellis and Meir Statman as advisors.

Another leading robo-advisor, Betterment, states that it invests “…your money in a globally diversified portfolio of low-cost index funds and give[s] you personalized financial advice – all at a fraction of the cost of traditional financial services.”

Betterment recently announced the availability of a “tax-coordinated portfolio,” which automatically applies an asset location strategy. It calculates a boost in after-tax returns of 0.48% a year, on average, for investors utilizing this feature. It also offers tax-loss harvesting, tax-minimized lot selling, tax-impact preview (which shows an estimate of the tax consequences of a change in asset allocation or a withdrawal) and “smart rebalancing.”

While the issue of whether robo-advisors are fiduciaries is controversial, an extensive white paper authored by the global law firm of Morgan Lewis concluded, “Digital advisers possess unique advantages that strengthen the fiduciary relationship and promote the delivery of sophisticated, consistent advice.” The authors of the study make this unflattering comparison to traditional advisors: “In contrast to advice delivered through individual human financial advisors, which may be offered ad-hoc, by phone, or conducted without reliable documentation, digital advice enables the consistent application of investment methodologies and strategies to client accounts, providing transparency, improved recordkeeping, and ease of audit.”

Read the full article here.