As Wall Street firms continue to struggle, beset from all sides by a waning public image, financial uncertainties, numerous regulatory battles that could drastically change their business model, and an ongoing defection of brokers and clients, the independent financial planning community continues to grow. In fact, within a few years, Cerulli predicts that wirehouses will no longer be the largest financial services channel. Yet at the same time, an increasing number of financial planning practices are not only taking business away from traditional wirehouse firms, but proactively focusing client attention on it with every media article that discusses troubles on Wall Street, to emphasize how their firm is different. The challenge, though, is that by trying to differentiate from the Wall Street firms by talking about their problems, we don’t actually elevate ourselves – we remind clients of the trust problems in the financial services industry. The end result – celebrating the decline of Wall Street wirehouses may actually help to drag us down with them!
The inspiration for today’s blog post is the recent New York Times Op-Ed column by Greg Smith, featured in last week’s Weekend Reading column. Smith was a Goldman Sachs executive director and head of the firm’s United States equity derivatives business in Europe, the Middle East, and Africa. In the article, Smith explains why he has chosen to resign from Goldman Sachs – suggesting that the firm has lost its client-centric focus, simply rewards people who make the firm the most money, and has too many “morally bankrupt” people in positions of leadership. Smith notes how some of the firm’s leadership refer to their own clients as “muppets” (not the Jim Henson characters, but a British slang term for ‘idiots’, as Smith was located in the London office) to be manipulated and taken advantage of. Smith did not suggest that Goldman Sachs is engaging in illegal activity, but that “people push the envelope and pitch lucrative and complicated products to clients even if they are not the simplest investments or the ones most directly aligned with the client’s goals… Every day, in fact.” Smith’s very public resignation letter created a furor, with over 3 million pageviews of the story in the first day or two alone.
In the two weeks that have followed, I have heard numerous stories of financial planners proactively sharing the story with their clients, either by relaying the NY Times Op-Ed article directly, or by writing about the incident to highlight it in their own words. The basic message is: “See, those Wall Street firms are horribly conflicted and do terrible things to their clients just to make a buck; isn’t it great you have an unconflicted, objective, client-centric advisor like me?” To which all I can say to our collective financial planning world is: Give It A Break.
When did it become so accepted – or even, popular – to celebrate other people’s problems and dance on their graves? Why is it considered a good thing to kick the competition while they’re down? If we were talking about situations where an advisor was competing head-to-head against a Goldman Sachs advisor for the same client, I at least can ‘sort of’ understand highlighting the Greg Smith article, to raise the question in the client’s mind about whether Goldman in particular is the right firm to work with. But that’s not what we’re talking about here. We’re talking about our planning community going out of its way to point out, emphasize, and celebrate the problems at another firm, that their current clients didn’t even have a connection to in the first place, just to take advantage of an opportunity to bash the competition for not being fiduciaries.
As I’ve written in the past, while I believe that being fiduciary and client-centric should be an absolute regulatory minimum for providing advice to clients, a focus on fiduciary is a terrible marketing strategy. Talking about how other firms are not fiduciaries does nothing to reinforce your value proposition with your clients. It just makes you look petty and desperate as you denigrate the competition by implying that they’re morally and ethically inferior to you. Sharing articles like the Greg Smith Op-Ed with your clients and prospects, who don’t even have a relationship with Goldman Sachs in the first place, represents the epitome of bashing the competition.
In fact, it’s worse than just bashing the competition. I fear that “celebrating” the Greg Smith Op-Ed with clients and prospects actually further damages the public’s trust in financial services. Because the reality, as the RAND Study and others have shown over the years, is that the average consumer doesn’t understand all these differences between brokers and advisors, the fiduciary and suitability standards, Wall Street vs “independent” firms. They look at the financial services industry in the aggregate. Which means when we go out of our way to point out problems in our industry, we just remind people how untrustworthy our industry is. Including us.
Now, I know what many of you may be saying – “But Michael, I’m sharing this with clients to help show them how I’m different than Goldman Sachs and those Wall Street firms. I’m trying to differentiate myself.” The problem is, it doesn’t really differentiate you from the problem. It actually connects you to the problem.
Think of it this way: Imagine I’m talking to my client, trying to differentiate myself from an elephant. For instance, I explain, I’m not a huge, lumbering beast. I don’t walk on all fours. I don’t have big floppy ears. I don’t have leathery, grey skin and a long, grey trunk that I use to feed myself grass. After this extensive conversation with my client about how I’m not an elephant, I ask my client what they’re thinking about. The answer: they’re not thinking about me, they’re thinking about AN ELEPHANT. Because the conversation I had didn’t paint a picture of me and what I do; it painted a crystal clear picture of an elephant in their mind while I explained all the ways I’m not an elephant! How can they not think about an elephant now? Have you ever tried to not think about an elephant? Go ahead, try it; try NOT think about an elephant.
Now, try not to think about questionable financial advisor who takes advantage of clients. Don’t think about how they make inappropriate recommendations for personal gain. Don’t think about how they reward themselves more for what they sell than the quality of their advice. Don’t think about how they actually refer to their clients as idiots, or talk about how they can rip someone’s eyeballs out trying to make money more. Instead, think about me and how I’m nothing like that. You know what the client is thinking about at the end of that conversation? Not you. The client is thinking about how dishonest financial advisors are.
Which means the bottom line is that highlighting articles like Greg Smith’s Op-Ed with your clients does not enhance your clients’ trust. It actually subconsciously (or sometimes consciously) damages the trust your clients have in financial advice. Because you can’t paint a crystal clear picture of advisors who try to “rip eyeballs out” to make a buck while referring to their clients as idiots, without raising the idea in your client’s minds that maybe the problem isn’t totally isolated to Goldman Sachs. Maybe the problems happen at other firms, too. Maybe it could even happen to them, someday, working with your firm. It’s doubtful, to be sure; but remember, you may be the one who raised that doubt in your client’s mind by bringing it up in the first place!
The bottom line is that if client-centric financial planners want to take the advice market away from Wall Street firms and other conflicted business models, the best way to do it is just to do such a fantastic job for their clients by acting in their interests, that they win the good old fashioned way: by just being better. In fact, as I’ve discussed in the past on this blog, it appears this is already happening, as fiduciary financial planning approaches the point of dominating the entire advice industry, and the wirehouse model continues to lose market share at a rapid pace.
So focus less on talking about how the competition is inferior, immoral, and inethical, and spend more time focused on simply BEING better than the competition. Your clients will thank you for it. They’ll probably tell their friends, too.