It wasn’t questionable trading practices or unfulfilled fiduciary responsibilities that drew the attention of Securities and Exchange Commission auditors as they combed through the books at Demming Financial Services Corp., recalls the financial planning firm's founder, David Demming, but rather some interesting numbers relating to a small niche of his practice.
What caught the eye of SEC staffers during the routine audit was that Demming’s Aurora, Ohio, firm, as a nationally licensed mortgage provider (NMLS #265581) as well as part owner of a mortgage title company, had either initiated or overseen more than $10 million in mortgage refinance transactions in the previous year, but made just $5,000 in the process — a paltry sum by most any conventional measure.
"I’m a total failure as a mortgage broker," admits Demming, tongue planted in cheek. "We make little or no money doing it."
Fortunately for Demming and his firm — which, he assures, emerged from the recent SEC audit unscathed — profiting from the mortgages they provide clients isn’t the point. For what makes them a perceived failure in that business, at least in terms of profitability, is exactly what has successfully differentiated them in the crowded financial advice market for the last quarter-century.
Regulatory red flags or not, Demming says he has every intention of staying active in the mortgage business for the competitive edge it provides his firm and the benefits it brings to clients who refinance through him. Those who have done so get below-market rates and lower fees. "We do think [the mortgage refinance service] engenders loyalty and appreciation for us among our clients."
It also gives Demming and his advisory team another means to help and protect clients and their assets. "It gives us a greater ability to influence outcomes positively for our clients, being on the inside of [mortgage] transactions like these," he says. "A lot of planners are on the outside, looking in. This allows us to be more involved with clients. And for the most part, they are happy we are."
Standing out as an advisor and a firm is no easy task in an increasingly competitive market, where flesh-and-blood, brick-and-mortar advisory practices as well as a new generation of online investment management platforms — so-called robo-advisors — are vying for the public’s attention and assets. "We as advisors have to work harder than we’ve ever had to work before to show how we add value," says John Freiburger, CLU, ChFC, AEP, founder of Partners Wealth Management in Naperville, Illinois.
Differentiation starts with the advisor or firm identifying a strategic focus area or unique specialized niche where they can add value, posits Stan Haithcock, a Ponte Vedra Beach, Florida-based annuity specialist who operates under the brand Stan the Annuity Man. "Advisors have to figure out how to stand out not by screaming the loudest, but because their [business and branding] model is unique. The difficulty is choosing a business model and focusing on it. The riches are made from niches. That holds true in the medical profession, where the heart surgeons, the orthopedic specialists, are doing really well. You can’t be all things to all people because then you can become mediocre and irrelevant."
Read on for more insights about how to properly position your business.
The Amazon of annuities
While advisors like Demming seek to differentiate themselves by deepening their client relationships, Haithcock is doing just the opposite to distinguish his business, having developed an online, direct-to-consumer model for selling income annuities via a handful of e-commerce sites, such as spia.direct, which focuses on single-premium immediate annuities. Emblazoning the landing page of one such site is the slogan, "Speak to no agent, hear no agent, see no agent."
"This is not a relationship sell," he explains. "There’s no 800 number on any of those sites. We don’t want people to call us."
Instead, his goal is to cater to baby boomers who want to invest in a vehicle that provides income and principal protection and want to do so in a purely transactional, non-salesy environment that, he says, is a far cry from the traditional annuity sales process many consumers must endure today. "The annuity industry is the travel agency of old. The consumer needs to have a choice that doesn’t involve [the salesperson], so why not just offer it to them? If they have made up their mind, they don’t need me anyway."
Haithcock, who cites e-commerce giants like Airbnb and Amazon as inspiration, says his sites "are getting inundated with requests for quotes." While his goal is to make them purely direct-sales outlets for consumers to purchase annuities, an agent still must assist purchasers at the back end of the process due to regulatory requirements.
But he’s hoping regulations will soon change to allow him to take the agent completely out of the picture. "If that means the death of the annuity agent — the death of me — so be it."
Standing out with teamwork, service
While the distinction between an advisor who must serve as a fiduciary to clients and one who must meet a suitability standard is an important one, says Freiburger, seldom is it enough of a differentiator for an advisory practice. "Well, you’re a fiduciary. That’s nice and you need to say that, but that’s not enough, especially in the high-net-worth market," Freiburger says.
Indeed, the alphabet soup of professional designations and certifications that the insurance and finance professions throw at their customers does more to confuse than differentiate, he claims. Instead, standing out in that segment requires a compelling service proposition. "You need to show them you have a team of professionals. Clients want a firm that can do a lot of what a client needs. We spend a lot of time thinking about who else we need to bring to our team to best serve our clients. That means putting aside our egos in the process."
Differentiation for advisory firms today — even those active in the high-net-worth space — also means being active in social media, according to Freiburger. Partners Wealth Management spends "tens of thousands of dollars a year" to maintain a strong presence on such channels as Facebook, LinkedIn and Twitter, he says, "so if someone’s looking for us, they’re going to find us. You’ve got to have that [social media] infrastructure."
Targeting boomers with a blended model
"We are a technology company first and a personal finance business second," Matt Carey says of his New York City-based firm, Abaris, which helps online clients convert their assets into a guaranteed retirement income stream with income annuities, chiefly with an emerging product called QLAC, short for qualified longevity annuity contract, an annuity that’s held inside a qualified retirement account and funded by RMDs from that account.
The sweet spot for Abaris, according to Carey, is "the mass-affluent market or a little higher — people with assets in the $250,000 to $5 million range" — who are roughly between the ages of 55 and 70.5, when RMDs from qualified accounts must begin. The one-year-old company’s differentiation strategy calls for blending the transactional — online annuity quotes — with personalized advice and online content to educate consumers about their retirement income options and annuities, he says.
Specializing in QLACs, Abaris is taking direct aim at digitally savvy, retirement-income-minded baby boomers, which Carey contends is an underserved niche. "I think the angle for us is leading with technology and creating an experience that’s organic for somebody who’s shopping online," he explains. "The market for providing advice is becoming increasingly crowded. But technology for baby boomers in the retirement space is not crowded at all."
Although Abaris caters to do-it-yourself boomers who want to shop online for a retirement income solution — they provide income annuity quotes from as many as eight carriers based on responses to a short online questionnaire — it’s become clear, says Carey, that interacting with a live advisor during the fact-finding and decision-making process still matters to a large segment of the firm’s target market. "I’d say 30 to 40 percent still want to talk to a live person," he says.
Carey adds that blended model is getting his firm noticed. "We’re getting a ton of volume to our site."
Rising above — or with — the robos
Some advisors who adhere to conventional models for delivering advice and managing investments choose to overlook robo advisors as a force to be reckoned with. John Freiburger, founder of Partners Wealth Management in Naperville, Illinois, says that’s a mistake he won’t make.
"A lot of advisors are asleep at the wheel," he says. "My feeling is, they won’t be here in 10 years, and they don’t even realize it."
Today, there are roughly 30 robo firms active in the U.S., according to Paladin Research. By 2020, the Swiss research company MyPrivateBanking Research estimates robo firms will manage $255 billion in assets. While that figure is dwarfed by the estimated $5 trillion that conventional U.S. wealth managers currently oversee, and while robo advisors typically cater to a younger, wealth-building millennial clientele, Freiburger and advisors like him have nonetheless realized they need to rise to meet the robo challenge rather than dismissing it.
"The emergence of robo advisors has forced us to consider the question of 'how are we different and how do we articulate that in a way that doesn’t come across as arrogant,'" he says.
It also has opened eyes to the appeal of the automated investment approach, Freiburger notes. "There’s more of an acceptance that some passive investing probably has a place in many portfolios."
Stan Haithcock, AKA Stan the Annuity Man, has opted to take an unabashed "if you can’t beat 'em, join 'em approach" to robos by developing a collection of online, direct-to-consumer annuity sales sites. His nickname for them: "robo-annuities."
We’re on Facebook, are you?