The Financial Planning Coalition is fighting the advocacy fight for a fiduciary standard for financial planning. While this certainly is a consumer-centric direction for financial planning, the firms today that practice financial planning may need to be careful about what they wish for. After all, for many firms, the fact that they operate as fiduciaries has become a central message of their marketing to prospective clients. So what happens if the Coalition wins the fiduciary fight? If everyone who practices financial planning must operate as a fiduciary, do a number of currently successful firms lose their key marketing differentiator and have to rewrite a new marketing plan?
The inspiration for today’s blog post comes from ongoing discussions I’ve been having with a number of financial planners about the longer-term implications of the ongoing fight for fiduciary financial planning. As highlighted earlier this week in the blog, I think that while winning on fiduciary would be good for consumers, it would actually increase the number of firms directly competing to deliver true financial planning services, because more firms will be required to compete in the profitable financial planning business directly if other business models are regulated out of existence. But a natural extension of this challenge is that not only might there be more competitors… it might also be harder than ever to differentiate.
In today’s world, many "true" financial planning firms differentiate themselves by communicating that they follow a fiduciary standard in serving their clients, from planners under NAPFA to the Garrett Planning Network to the Alliance of Cambridge Advisors. From focusing on fiduciary directly, to highlighting a fee-only compensation model that is meant to support fiduciary, the fact that not everyone currently practices financial planning in this manner allows many firms to direct attention to this as a significant differentiator. The fundamental underlying message – "You can trust me, I’m making recommendations in your interest, and I’m willing to adhere to a legal standard that enforces it" – is attractive to many prospective clients tired and wary of the current advisory marketplace.
Yet what happens if the Coalition and other fiduciary advocates win the fight for fiduciary, and anyone and everyone who holds themselves out as a financial planner must genuinely practice as a fiduciary? For many of the currently successful firms who operate in this space… they lose a key differentiator from their competition. In a world where everyone who practices financial planning is a fiduciary, firms will have to find some other way to attract clients. This is paralleled in other professions, as well; although I certainly expect my doctor to act in my interests, having a doctor who proudly states that he has taken the Hippocratic Oath to practice medicine ethically is just not meaningful in today’s world when every other doctor has taken the same oath!
So how will financial planning firms compete in the future? To say the least, they’ll have to compete by other means. Some will highlight truly advanced expertise in specialized areas. Others will focus on a particular niche. Some may seek to create a local community or media presence. Many, though, will just struggle more to attract new prospective clients and persuade them to pay for services as the marketplace becomes more competitive.
In the end, many of the planning firms that advocate most passionately for the fiduciary standard are also amongst those who use fiduciary as a key differentiator in their marketing. Yet while I believe it’s a wonderful step forward for consumer, I fear that for a few such firms, they need to be careful what they wish for. The fiduciary world we’re creating may ensure better advice for consumers, but it may make the landscape for financial planners more difficult than ever to compete, differentiate, and succeed.
So what do you think? Will the creation of a fiduciary standard impact how you market and communicate to your clients? If everyone is a fiduciary, does that make marketing messages about being fiduciary, fee-only, etc., a moot point in the eyes of a client? Will fiduciary firms have to re-focus their marketing to survive in a wholly fiduciary world?