The Practice Doctor is IN

Al Depman, CLU, ChFC, CMFC, BH

Practice Management Consultant

Competition: the Good, the Bad, and the Ugly

Competition is a hallmark of a healthy free enterprise economy. The general concept of offering consumers a choice in purchasing products and services is embedded in the American way of life. So when I ask an advisor who his competition is, a common response is “my only competition is me.” I usually chuckle––yes, indeed, we all need to challenge ourselves to grow. But the reality is that people have many choices in selecting their financial advisor. You are in constant competition with all of them, consciously or not.

The good will and monetary values of your practice will be affected by these competitive pressures. Having a handle on your unique value proposition, mission statement, and iconic presentation (discussed in previous columns––call or email me for reprints) can help position you in a tough competitive environment. Let’s look at your practice in light of competition.

We can break competition down into three categories:

1.  The Good: Friendly

2.  The Bad: Product

3.  The Ugly: Hostile

The Good: Friendly

Friendly competition is welcome. Companies often stage sales campaigns focused on product promotion or asset gathering. Some advisors respond to such incentives, but many do not. The competition is impersonal for the most part. Rules of a campaign can be tricky and advisors may sandbag business until a campaign period begins. Competitions that are done at the local level are more motivational. Within individual offices, friendly competition can spur camaraderie and/or production. Advisors can race to accomplish a designation or license, to write the most life insurance applications, or gather the most assets. Done correctly, friendly competition is motivational and productive.

The Bad: Product

Product competition can detract from the client/advisor relationship and swerve it into the transactional lane. If your client is approached by another advisor who claims to have a superior product, your client management system is being tested. Getting a replacement notice means it’s too late; your client relationship wasn’t strong enough. Especially with top tier clients, the best defense is for them to be able to explain why they have the product you placed with them. Last month’s discussion of the “Delivery” step in the larger sales process addressed this point: your clients need to be able to articulate what they bought and why it fits into their overall financial strategy. A sign of success is for the client to call you when approached by another advisor with a competing product.

From the advisor’s point of view, product competition can lead to some sticky situations. Let’s say two products that do essentially the same job for the client are available. One is proprietary and yields more company credit, but less income. The other is an out-brokerage product that pays better income but scant company credit. It can get more hairy if the products have slightly different structures or provide optional bells and whistles. There is no right or wrong answer. The choice is made at the confluence of two factors:

1.         What’s best for the client; and

2.         The advisor’s relationship with the broker/dealer.

The Ugly: Hostile

Hostile competition can destroy a practice. Hostility can occur when an advisor and a company part on bad terms. The agent signs on with a new company and honors the “letter” of the non-compete clause but not the “spirit.” Clients are caught in the middle as the advisor bad mouths his old organization and the old firm reaches out to communicate their version of the breakup.

Hostile competition can also be fostered by a company out to raid the business of another, or by an advisor with a vendetta against another advisor. Rumors, allegations, lies, defamation lawsuits, and ugly encounters can result. None of this is conducive to building a practice. Clarity of expectations, relationship building and maintenance, rumor control, and due diligence before signing contracts will serve to minimize the hostilities that can arise over time.

And what about that “my biggest competition is myself” response?

We’ll take that up next month!

The Doctor is OUT.

Al Depman, CLU, ChFC, CMFC, BH, a.k.a. “The Practice Doctor”, is MitchAnthony.com’s Business Practice Consultant. He is the creator of “The Practice Management Assessment” tool and materials and has authored numerous articles in professional publications on practice management, and author of the book, How to Build Your Financial Advisory Business and Sell It at a Profit, now available from McGraw Hill. Al combined his Liberal Arts studies with 10 years of management experience with McDonald’s Corporation to enter the financial services world 25 years ago. Since then, Al has evolved from an MDRT-level sales rep into a full-time consultant specializing in helping others engineer their business practices to the next level. Contact him at al@mitchanthony.com.

© 2009 Al Depman