Trending
No one wants to overpay. Online shopping has conditioned us to shop for identical items on the basis of price alone. We usually want free shipping thrown in too. Buying services is different. Have you ever looked into your personal life and considered the disadvantages of working with the lowest cost provider?
In my personal life, I think of a dry cleaner charging about half what competitors charge. I also think about one of the big box stores that aims to be the lowest cost provider. Think about this from the perspective of a full service financial professional competing with lower cost providers.
1. You shop because you need something. You tend to visit the low-cost provider because you know exactly what you want. You have done your research ahead of time. You only need to walk in, take it off the shelf, pay and walk out. It’s a transaction.
Financial Services: If a person is a DIY (Do It Yourself) investor and has done all their research themselves, they only need an order taker. An online provider might be fine.
2. Shabby premises. As a shopper you might notice the shelves are messy. Products are not where they should be. Maintenance might have been deferred. You don’t want to spend any time there. Shopping is not a pleasant experience. It is down market.
Financial Services: You have heard of “bucket shops” where financial professionals rarely meet with prospects and clients in the firm’s office. It’s not in the central part of town.
3. Old technology. They might take some, but not all credit cards. Checking out is a problem because there are few registers open. If the person ahead of you has an item missing a tag or with a discounted price written over the tag, that transaction is going to take ba long time.
Financial Services: Ideally you want a firm that has invested in technology. You want your data to be secure. You want the ability to remotely access account information on your terms.
4. Not happy to get your business. Lily Tomlin had a great line on Laugh In (1968-73) when she played a telephone operator. “Fair? We don’t have to be fair, sir. We are the phone company.” When you are the monopoly provider, you know people have to do business with you.
Financial services: Most firms and advisors adopt the attitude from the American Airlines announcement “We know you have a choice in air travel. Thanks for choosing American Airlines.”
5. Sudden price increases. One day the price for cleaning shirts jumped 75%. No explanation. They were still much cheaper than any competitors.
Financial Services: If a firm raises prices, the advisor usually breaks the news to the client. The firm alerts the client through multiple channels.
6. Engaging with customer outside sales. I thought it would be nice to make the effort to return the wire hangers instead of throwing them away. When I brought them back, the person at the counter wordlessly pointed me towards a large box on the floor where I could drop them.
Financial Services: Most financial advisors try to get a dialog going with clients to establish a bond, moving away from the transactional relationship experience.
7. Not much staff support. You have been to those stores where the line at the register is incredibly long. They might have a dozen register stations, but only four of them are staffed.
Financial Services: When you call a financial advisor at a major firm during business hours, if you don’t reach your advisor, you get their assistant or the call rolls over for someone else to cover. There should always be someone available to place your order.
8. Low morale in the store. Have you had the experience shopping for jeans and the size you want is not on the shelf? When you find a salesperson and ask if they will check in the back, they explain all their stock is on the shelves. They don’t even bother. Staff turnover is high.
Financial Services: Major firms try to do a good job keeping morale high, encouraging the staff to give clients and prospects respect.
9. No encouragement to return. When you shop with the lowest cost provider in town, the transaction is completed, but there is little or no relationship building. You might have experienced this in a tourist or conference hotel when traveling.
Financial Services: In this industry, individual advisors are seeking to build long term relationships. They actively encourage the client to come back.
10. Unbundling. Didn’t the airlines start this practice? The basic fare is cheap, but you pay extra to reserve a seat or check luggage.
Financial services: Asset based pricing often means complimentary services like financial planning are included.
11. Aftermarket service. One of the compelling arguments for working with a local CPA firm is your accountant will represent you if you are audited by the IRS.
Financial Services: You feel confident your advisor (or their firm) will continue to answer questions or provide help, even if you are not an active client.
12. Passing on cost increases. You have seen restaurants where a sign reads “Credit card use incurs a 3.5% surcharge.” When you buy gasoline, you often see two prices, one for cash and another for credit. They are passing along credit card processing fees to the customer. The receipt from a New York taxi itemizes all the additional charges passed along to the rider.
Financial services: Costs might go up, but many firms keep their asset-based pricing stable for competitive reasons. If costs do go up, many advisors are open to discounting to keep the relationship.
The dollar cost might be cheaper if you work with the lowest cost provider. There may be other indirect costs.
Related: Those Times Clients Need Financial Advice but Don’t Ask