October 17, 2011

Developing your RIA Value Proposition

Your RIA's value proposition is a promise of value made to advisory clients that you can deliver on profitably. It represents the reasoning that you hope your prospects will follow as they consider establishing a relationship with your firm rather than with your competitors.

The term "delivering value" has become a fixture in the business lexicon. But as its usage expands, I often wonder how many people have a clear sense of what it actually means. Client value can be defined as:

Client benefits - Client costs = Client value

Value proposition is a strategic concept that is intended to be internally-focused because it ultimately deals with profitability and resources. Its strategic value really comes from guiding your thinking with respect your firm's capabilities, offerings, delivery methods and client targeting. Both benefits and costs may be explicit (e.g. financial, time) or implicit (e.g. piece of mind, risk) so it is important to consider both when determining the total value derived by your clients.

Now, don't get me wrong. The client is central in this process. While the value proposition may not be directed towards the client, it is entirely about the client. And ultimately, a well-constructed value proposition will certainly become a key component of how you communicate with clients and prospects. (We will focus on value proposition implementation in a future post.)

Here is a framework for thinking through your RIA's value proposition.

1) Be sure to do the background work
It's important to keep in mind that value proposition development is simply one part of your advisory firm's strategic planning process. For example, you need a solid understanding of the scalability of your activities prior to creating a promise of value. Likewise, a clear understanding of your client segment's needs will improve your chances of targeting prospects that will value your services (which reduces sales expenses and improves profitability!). Attacking any strategic topic in isolation is the primary reason why they often fail.

2) Identify the benefits
Specify each of the benefits that your RIA provides to clients. These benefits also include improvements that you can make when compared to their existing advisor (e.g. reduced expenses, improved risk control). In the advisory industry, many benefits are intangible, like "piece of mind" or "confidence that comes from being on the right track towards financial goals". Be sure to capture them all, particularly those that resonate with your segment's decision triggers.

3) Identify the costs
Explicit costs (advisory fees, transaction costs) are easy to identify. Implicit costs are much trickier to identify and may vary across clients. These may include: switching costs, fear of regret, or apprehension to leave their current advisor.

4) See the value (through your client's eyes)
Create a ledger of these benefits and costs and compare them to better understand the drivers of a prospect's decision to hire your firm. Because of the intangibles, this is not a purely mathematical exercise, of course. But this process will help refine your thinking around what you deliver and how the "ideal client" will likely value your benefits. Socialize this list with some existing clients to get their reactions and see if you have missed anything important.

5) Establish the unique nature of your value proposition
Compare your value proposition with the alternatives available to your clients. (This will be easier if you have already conducted a competitive analysis for your market.) Be open minded and frank when assessing your competition. Even if at first blush it looks like they are delivering zero value, somehow they have weaved together a value proposition that has resonated! How does your value proposition differ? These differences become the link to your unique position in your markets.

Like many strategic exercises, the value to your firm comes from both the output and the process. This particular exercise will be incredibly valuable because it will help you:

  • Clearly articulate the reasons for doing business with your firm
  • Identify segments (or client types) that may not fit with your business model due to needs that you cannot fulfill profitably or because certain clients may not adequately value your benefits
If your advisory firm has established (or has considered establishing) a value proposition, we would be very interested in hearing about your experiences.


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