BALLAD IN URGENCY

Over the past summer, I had the pleasure of earning my MBA, and one of the most impactful takeaway lessons was the notion of defining your “competitive advantage.” In reality, every firm only can compete based on one of two distinct advantages – either price or experience. The idea is that people will either seek the low-cost provider or be willing to pay a premium given the experience provided by the product. Think Motel 6 versus Ritz Carlton, McDonald’s versus Morton’s, Hyundai versus Porsche. In each case, the consumer decides what priority they will place when purchasing the underlying product. When you start to run any product through this decision matrix, it becomes evident that these are really the only two competitive advantages that exist. Given this the underlying firm must decide how to present itself to the marketplace.

So, how does this apply to the asset management business? While fee compression has been prevalent for decades, there is still a massive difference between low-cost ETFs (some at no cost) and higher-priced active management products. At the end of the day, the consumer makes a purchasing decision based on price (market-level returns) or experience (the opportunity to generate alpha). Active ETFs might try to muddy the waters, but they are still a much more expensive option versus their beta driven counterparts.  

More importantly, ALL salespeople must decide what your competitive advantage is. If you are simply a purveyor of low-cost ETF, your activities should be solely based on frequency. Your success will be based on your ability to scale your business. You are selling a highly commoditized product where the objective is a predetermined outcome. Therefore, your priorities should be increasing your number of meetings – it’s all about scale. When you walk into McDonald’s, you get a predetermined outcome, right? While I am sure McDonald’s wants you to have an enjoyable experience, they also realize you are not going to jump on YELP and rave about the Big Mac. Why? Because it’s a predetermined outcome. It always tastes the same, and you are most likely choosing them over Morton’s given their price point.  

If you are selling active management, you have to justify the higher price. This can be done in two ways: the opportunity to outperform the market and/or the service you provide. Now alpha is a tricky sale because you don’t control it, and if we are honest with each other, most people buy it after it already occurred. Service, however, is your value proposition. It is the only competitive advantage you have to distinguish yourself and justify the higher cost. All of your activities should be based on making your clients have a memorable experience. No mass emails, no massive Zoom calls, no unannounced check-ins. All activities have to be personalized and catered to your client’s needs. Did you ever check into a Ritz Carlton and you find your room includes a personal “Thank You” note from the manager with some bottled water and chocolate covered strawberries? If so, you know exactly what I am talking about.

So, now the question to ask is whether or not your firm is empowering you to provide this level of service. Are they giving you the resources to distinguish yourself? This is not about sending out a sleeve of golf balls. This is about leaving an impression where the Financial Advisor will not stop talking about what you did for them. Your actions have to be: Personable, Meaningful, and Memorable.

Try to think outside the box on this one. Be creative, but also be compliant.