By David SniderIndustry News — March 13, 2019

How Independent Advisors Build Loyalty

In a world where innovation has created significantly more consumer choices and consolidation has resulted in industry leaders having more cost and operational advantages, how do independent financial, tax and legal advisers survive and thrive?


In a world where innovation has created significantly more consumer choices and consolidation has resulted in industry leaders having more cost and operational advantages, how do small and mid-size (SME) professional service firms survive and thrive? This is very much a challenge for the increasingly growing number of independent financial, tax and legal advisors within the wealth management space. For them and other SMEs, a disciplined focus on developing client loyalty through technical parity and service outperformance will be the way in which they differentiate themselves from traditional players and grow.

More broadly, there are three levers that business can draw on to win new clients: lower pricing, technology enablement and service that exceeds expectations. SMEs in the investment management space, there are formidable challenges to some of these avenues for growth, therefore the key to surviving and thriving is to focus on where they can outperform industry leaders.

Independent Financial, Tax, and Legal Advisors Pricing vs. Robo-Advisors

Price can be a powerful tool in acquisition though it is the most difficult to leverage in a sustainable manner, particularly for independent advisors. Robinhood, by offering zero commission trades has been able to grow its user base to over 4 million in 3 years. That formula, however, often does not automatically translate to customer stickiness and a defensible strategy in and of itself over time should future entrants undercut on pricing. Moreover, price. alone is virtually impossible for independent advisors to leverage as a defensible characteristic when Vanguard and robo-advisors have presented technology focused alternatives that are a fraction of the cost. Even if SMEs wanted to compete along this dimension, making that model work requires significant scale that is oftentimes challenging for SMEs to reach on a reasonable timeline.

Truly defensible client relationships that mitigate attrition and drive referral-based growth tend to be a byproduct of companies’ ability to build client loyalty. The two enduring paths to customer loyalty have generally been from technology enablement and service that exceeds expectations.

Technology Enablement

Perhaps the best example of tech enablement creating loyalty is Bloomberg. Bloomberg was able to leverage superior infrastructure to provide real-time financial information better than any other offering. Most importantly, it has been able to continue that innovation for decades and persist as an essential subscription service on Wall Street. First Republic is another example of a superior service model. It has built a thriving bank based on a differentiated service model, exceeding client expectations with bespoke solutions and personalization.

SMEs that are not built as tech companies, as many independent advisors are not, generally struggle to develop their own proprietary technology. Great technological development typically requires the wherewithal to hire excellent engineers, the ability to access to capital and the scale to make that development cost ROI positive. Fidelity recently announced that it spends $2.5 billion a year on technology, nevertheless it certainly doesn’t guarantee them a technology offering that is a competitive advantage. Nevertheless, client expectations of digital access, functionality and usability continue to rise, raising the bar on what incumbents need to provide in order to stay relevant. The silver lining for independent financial and tax advisors is that a new group of fintech companies have emerged to help players of all size have a functional technology offering if they are willing to make investments and adapt behavior.

Client Service that Exceeds Expectations

As a result, service outperformance emerges as the main path for SMEs to build defensible loyalty. In investment management, portfolio management is becoming increasingly commoditized in the eyes of the consumer and consequently, customers expect more from their financial advisor. These heightened expectations are also starting to be felt by CPAs around tax compliance. In a recent study of loyalty within the banking sector Bain & Company found that top five attributes for client loyalty are: quality, time saving, anxiety reduction, simplification, and heirloom, a belief that the provider is a good investment for future generations. For investment management, expectations of simplification, anxiety reduction and time saving not only come from the core service offering, but also the integration of solutions for other personal wealth related issues- comprehensive planning, tax, trust and estate and beyond.

In developing the Harness Wealth platform, we saw an opportunity to partner with advisory firms focused on service outperformance and to help enhance the capabilities that will allow them to thrive in this paradigm of loyalty and growth. We believe that an enhanced digital experience not only assists great advisors in serving existing clients, but also attracting next generation ones that expect those capabilities as a precursor to engagement.

To learn more about the firms who work with us, visit Our Firms and learn more about our Our Firm Evaluation Process.