Why RIAs Should Value And Promote Independence

Originally published on Forbes.com. Independence is the very center — the heartbeat if you will — of the RIA value proposition. Yet, I see so few RIAs actually promoting or even talking about independence. I believe this is a huge missed opportunity. One of the biggest challenges in the financial services industry is differentiation. It's often very hard for prospective clients to tell the difference between this adviser or the next one down the street.

If you want your market to understand how and why you're different and why they can trust your counsel, I recommend that you talk about independence.

Why do I say this? Through LinkedIn today, I am connected to more than 10,000 people, many of whom are financial advisers or leaders of financial advisory firms. Many of these people work at RIA firms. A high percentage have earned their CFP? designation. This gives me the opportunity to view how they position their value proposition both on LinkedIn and on their websites.

The public messages are, more than likely, emblematic of the types of private conversations RIAs have with their clients. The trend seems very clear to me. RIAs tend to talk about what they do, but not how what they do is different from other types of advisers. That's an important distinction. To my way of thinking, the financial services industry breaks down into roughly two groups:

• Those who recommend products and services because they have to
• Those who recommend products and services because they want to

I know that is an oversimplification, but it serves my point. RIAs are in the enviable position of being able to recommend products and services that they believe are the best fit for their clients. This gives them the opportunity — if they embrace it — to be completely objective in their counsel.

The Fiduciary Standard

A fiduciary is someone who is required to act in the best interests of their client. There is a reasonable argument to be made that in the financial services industry, RIAs are in the best position to serve as a fiduciary to their clients. After all, most RIAs are not tied to the investment platform of a large institution.

Herein lies the difference. Advisers who work for large institutions that maintain their own investment platform have to recommend those products and services. RIAs, on the other hand, can recommend a much broader array of products and services because they are not constrained by the investment platform. This allows them to guide their clients toward solutions that they want to recommend. This allows them to be objective.

How This Impacts Relationship Formation

Most adviser-client relationships are formed following a fairly standard process:

• Discovery: The adviser comes to understand what a prospect is trying to achieve.
• Analysis: The adviser asks themselves which products and services will most likely achieve those goals.
• Recommendations: The adviser recommends products and services.
• Execution: The client accepts the recommendations and takes action.

When we examine the mindset of financial advisers in each of these stages, we begin to encounter the value of independence. Most financial advisers will utilize a fairly standard and repeatable set of questions for the discovery phase. This allows them to uncover what is important to the client, but also what's missing for the client that could really help them.

Independent-minded advisers will often ask much deeper and broader questions than other advisers, questions that may appear to the client to have little to do with investments. Right from the start, a client is being asked to reflect on their most vital relationships, deepest values, biggest dreams and most important goals. In other words, discovery, for independent financial professionals, is about the client. It's about gaining a true 360-degree view of what matters to the client so the adviser can help make it happen.

But it's the analysis and recommendation phases that truly show how independent a financial adviser can be. I sincerely wish more clients would ask this one question when they get to this phase of the relationship: "Why is my financial adviser recommending this?" This question, when answered honestly, will usually unveil the motives of the adviser.

I'm not suggesting that only RIAs can be independent, objective or client-centric. I know many major Wirehouse advisers who consistently act in the best interests of their clients. But RIAs are in the best position to do this because their advice is what the client is paying for, not primarily commissions on product sales. This leads to another great question I wish more clients would ask: "How do you get paid?"

Where Loyalties Lie

Independence is too important a subject to get pushed to the side or glossed over. Independence is what allows an RIA to be objective and to act in the client's best interests. After working with top financial advisers for more than 15 years now, I've seen advisers struggle to preserve their independence, to actually fight for it. I've also seen advisers leave organizations so they can serve clients the way they want to serve them.

Their independence not only likely helps them sleep better at night, but it also gives them pride. I have come to believe that independent financial advisers often stand behind their work more fully and possess a strong sense of integrity. Independence can often lead to an "all-in" mindset, where advisers fully own their behavior and personal brand.

So why don't more RIAs talk about independence, highlight it and make it a differentiator? That is a good question.