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Martin Bamford: Differentiate to succeed

Martin Bamford MM blog

To succeed in business, you need to appear different from the competition. Being better Is not necessarily a competitive advantage. Being different provides consumers with a genuine choice between Company A and Company B.

Seth Godin explained how this works in his book Purple Cow. It is a simple concept; in a crowded market place, the key to success is finding a way to stand out. You need to become the purple cow in a field of monochrome Friesians.

There is a real danger that the Retail Distribution Review will turn us all into boring, regular bovines. After all, from 31 December we will all hold the same level of qualifications, all operate on the same ‘adviser charging’ basis and all hold ourselves out as either independent or restricted.

Of course, in reality the differences will remain. Only the minimum standard of qualification will be the same, as it is today. Individuals and firms will still be able to differentiate by striving for higher standards. Where diploma was the competitive advantage over certificate in the old world, chartered will offer the competitive advantage over diploma in the new world.

Our charging structures will not all be the same. Some will choose to continue working for ‘free’, only using adviser charging where a customer accepts their advice and decides to implement a product. Others will come up with innovative fee structures that truly reflect the value of what they offer.

When it comes to status, independent will remain the highest standard and restricted will come in a multitude of different flavours. The Baskin-Robbins “31 flavours” slogan could easily be applied to the different shades of restricted advice.

On this subject, I can understand why Lift Financial has made the decision to no longer call itself an IFA, instead referring to itself exclusively as chartered financial planners. The former is a tainted title when used in isolation. The latter has real value with both consumers and professional connections.

What is really powerful from a brand perspective is a firm of chartered financial planners offering independent financial advice. If both are considered the ‘gold standard’, combining the two must result in the platinum or palladium standard.

Our own experience since being awarded the corporate chartered title is that professional connections in particular now set us apart from the traditional IFA firms they have dealt with in the past. As much as we might not like it, the IFA label has become tainted by association with questionable sales practices and excessive commissions.

If you are thinking about points of competitive difference in the final few weeks before the RDR is finally implemented, then Purple Cow should not be the only reading material on your nightstand. The latest Ernst & Young publication One Step Beyond offers more valuable insight into what it will take to survive and thrive in the new world of retail financial services.

To summarise a few of their thoughts, replicating commission structures with fee-based structures is a high risk strategy. Consumers will notice and will reject these contingent charging structures. Recognising the value of advice, and charging for it accordingly, will ensure commercial survival.

Rather than a decision between independent and restricted, Ernst & Young appear to conclude that firms will need to either offer user-friendly execution platforms, or rich face-to-face fee-based holistic investment advice, or both.

Meeting the requirements of the RDR became a side show for most firms a long time ago. Being sufficiently attractive to consumers in 2013 and beyond is the only game in town right now. Even that challenge is fast becoming dated, with new and more important business challenges emerging.

Martin Bamford is managing director of Informed Choice

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Comments

There are 18 comments at the moment, we would love to hear your opinion too.

  1. Martin, you are slacking Sir, this article has been up for nearly 2 hours and no-one has abused you yet! Do try a bit harder next time! lol

  2. @James Marchant

    Thanks, James. I just don’t understand it. I mentioned fees and qualifications in the same article, and yet no vitriol after two hours. Maybe everyone is busy scrambling to get their Diploma and SPS in place by 31st December?

  3. I care not whether you mention fees or qualifications, most college graduates could become chartered in their sleep so if that’s your yard stick or even your “purple cow” (must try that one with my everyday clients) then good luck.

    Soon most people will be singing the same tune so how different will you be then??

    What next for you holier than thou types “I’m chartered, get me out of here”!!

  4. Nice article Martin. In particular, the fact that what you state has always been the case in many other businesses outside of financial services. Be different…

    RDR has narrowed the focus on qualifications, the regulator, charging and a myriad of other things. People care about these things once they are engaged with an adviser, but they start off with ‘something’ that stands out as different that appeals.

    I am now waiting for Purple Cow Financial Services to appear. It is possible….we have had BlueFin before!

  5. It’s a shame the FSA don’t like purple cows!

  6. I agree with what Martin is saying about differentiation being the key.
    I don’t think for many clients that will be level 6 although I again see his point about professional connections perhaps moving to a preference for level 6, but not the average person in the street.
    I would have thought that now level 4 has become the minimum from Jan 2013, in order to assist with Martin’s differentiation, the last thung he would want it for there to be a mandatory level 6 as it will either result in everyone getting level 6 and removing his difference OR the more likely issue of more misbuying rather than any misselling with an increased swathe of advisers leaving the industry.
    I have my level 4 and a couple of other qualifications past that, but only in subjects that I see of being of value to me or more importantly my clients.
    The needs of our clients should drivre our study and NOT the regulator.
    Hopefully Martin will not get too much criticism this time as his article is pretty much correct and hasn’t used some of his often inflamatory attacks on those that don’t want to work the way he does.

  7. That was me Anonymous | 30 Nov 2012 11:17 am, I didn’t mean to post anon.
    Kind regards Phil Castle

  8. Most of the heffers are grazing in East London.

    They’re all grey and give not one drop of milk.

    In fact, they are voracious and need a new field to fatten themselves further.

  9. @derek pearce

    Thanks, Derek. Become Chartered is one way to differentiate when the majority of the market is only at Level 4. It’s not the only way. In fact, I would advocate for a mix of differences, rather than relying on one which could be matched or trumped by a competitor.

  10. @James Dean

    Thanks, James. I agree that qualifications, fees, status etc are mostly hygiene factors and we need to focus on other things to get clients to engage with us in the first place.

  11. @Phil Castle

    Thanks, Phil.

    Taking a view on a move to a mandatory Level 6 is tricky. On the one hand, I can see potential consumer benefits and lower risk to my business through reduced regulatory costs. On the other, not having it in place gives us a strong competitive edge over less well qualified advisers.

    I guess however it is something we can have a view on but the FSA/FCA will decide the outcome in the end. Regardless of whether I back it, I think it’s inevitable that we will all be required to be at Level 6 by 2020.

  12. Martin, if level 6 by 2020 is what we are told we must be, then I would rather got to Uni and do a level 6 in something else more interesting. Money really isn’t a very interesting subject.

  13. After more than 20 years it still surprises me that I’m one of the very few who have their own business in Financial Services and have owned and run a successful company in another field, so I think I can claim to have some experience concerning this topic.

    What Martin says is perfectly true and differentiation is vital. I applied that in industry many years ago and do my best to apply it today. I very much agree that being Independent is the greatest and most important differentiator. Apart from that it isn’t so much what you call yourself or even the qualifications you hold – it’s what you do. In industry I produced products in plastic. I held a few patents, but I did not have an engineering degree – in fact I never did more that Physics ‘O’ Level. I do much of my work with professional connections and have never (yes, never) been asked by them, or by clients what qualifications I hold.

    In our case is what the customers directly experience and can ‘feel’. The product is advice. It is how that is given and received that helps to differentiate. The price is an adjunct. It can sometimes even be irrelevant if the only place you can get the ‘product’ is with you.

    I don’t share the view that we should be ashamed of calling ourselves IFAs. It describes what we do perfectly; other titles do come across a tad pretentious. Just because there were a few ‘rotten apples’ doesn’t mean we are all tainted. There is rubbish in all walks of life. I’m not ashamed of the title. I’m not ashamed of being in Financial Services (as so many now seem to be). I recognise and accept that at root I’m a parasite, as I actually produce nothing and rely on others to make my living. But that includes lawyers and accountants as well, so I guess I’m in ‘good’ company!

    Let us also be a little less fixated on regulation. Sure it is often an irritation and inconvenience, but there is regulation in all fields. In all cases it is run and administered by bureaucrats – and that is really all that needs to be said. To quote Albert Einstein – “Bureaucracy is the death of all sound work.” So just let’s be a little bit more phlegmatic and concentrate on running our businesses.

  14. @Phil @ 12.51
    Could not agree more Phil
    Do something much more worthwhile, without the greedy cows at canary wharf grazing on the back of your hard work.

  15. martin appears to ignore the Tied providers and their advisory distribution who will have no RDR changes.

    its not all Pims and croquet on a level pitch. should be but it will not be.

  16. @Phil Castle

    It’s as interesting as you make it, Phil.

  17. @man on the moon

    Tied or ‘restricted’ advisers are subject to exactly the same RDR rules as independent advisers will be. Higher minimum qualification standards, more robust status disclosure and adviser charging. It appears that the FSA is already taking a tough line on hidden remuneration practices such as funding for other projects and ‘vertical integration’. We should expect to see a very level playing field; perhaps not from day one, but within a very short space of time.

  18. @Martin

    whilst your ambitions are admirable re Tied Product distribution it is not the case that they will have to adopt Advisor Charging. It will be the same pre and post RDR. I have this on very good authority from a Bank that recently tied and a very high end sales force who will receive marketing allowances with clients investing at 100% allocation rates.

    In regards to higher minimum quals that it is a minor discomfort. The Regulatory authorities have not enabled a level playing field of any kind.

    My long deceased father used to say that ‘the road to hell is paved with good intentions’.

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