The 5 Questions for Your Financial Planning Strategy

Too often we allow what is urgent to crowd out what is important. Executives at financial services firms often display this behavior when urgent day-to-day matters distract from the strategic priorities of their firm. When market changes necessitate a shift in strategy, it too often gets delayed, or even worse, the need goes unnoticed. For example, the rise of digital advice platforms in 2015 led to many firms scrambling to develop a new strategy for providing advice, products and services to their clients. The proliferation of these platforms caused a decline in how much consumers were willing to pay for portfolio management alone. Not all firms recognized the rapid change that was taking place. They focused on what seemed most urgent — how to keep their clients — and ignored the importance of developing a new strategy.

Developing a new strategy is not easy. For firms that haven’t changed their business model in many years, it can be very difficult and challenging to redirect. Luckily there are successful models out there that can simplify the process. In their book, Playing to Win: How Strategy Really Works, A.G. Lafley and Roger L. Martin note that strategy is about making specific choices to win in the marketplace. More specifically, they define strategy as:

“An integrated set of choices that uniquely positions the firm in its industry so as to create sustainable advantage and superior value relative to the competition.”

Lafley and Martin further break this definition down into a five-question framework that is useful for firms seeking to develop or enhance their strategy around financial planning. These five questions highlight key choices necessary to implement a successful strategy. Let’s dive into this model and explore how it might help a firm develop a new strategy and grow its financial planning services.

A WINNING ASPIRATION

A key question to start with, according to Lafley and Martin, is “What is our winning aspiration?” Winning aspiration refers to a company’s overarching purpose or long-term vision for success. The statement needs to be clear and inspiring, and it must ultimately define what the company aims to achieve. According to the authors, developing a winning aspiration is the foundational step in the strategy development process, as it provides a north star for an organization, aligning all decisions and actions towards a common goal.

Developing a winning aspiration is the foundational step in the strategy development process, as it provides a north star for an organization, aligning all decisions and actions towards a common goal.

For financial services firms this means avoiding generic statements and being specific about what success looks like, as well as how it will position the firm vis-à-vis its competitors. Will it redefine a financial planning offering that is broader, deeper or more compelling for its customers? Is the user experience unique, more efficient and an easier journey for the client? Are the firms’ advisors better trained and held to higher standards than the average financial advisor? Will the new offering provide more economical access to mass market customers who may have simpler planning needs and be more cost conscious? By going through this process, firms can reimagine their business offering and define their market segment to develop a strategy that will set them up to win.

WHERE TO PLAY

After defining a winning aspiration, the next question, according to the authors, is “Where will we play?” This is a crucial step in the strategy development process because it determines the scope and direction of a business’s efforts. To answer this question, the company will need to look for signposts on which way the industry is going, to identify appropriate markets and customer segments for their offering. While evaluating these market segments, the company will need to make sure that they play to the company’s strengths and core competencies (otherwise it will need to build, hire, partner or buy those competencies). Do these market segments have growth capabilities? What are the risks? The choice to play in a certain segment also means the company will forfeit other segments that don’t align with their vision of the future.

A firm, for example, may conclude they can best compete and serve a HNW market, but they do not have the core strengths and capabilities to compete in the mass affluent market. By being intentional and deliberate about where to compete, the company can excel and outperform competitors. This means identifying competitive advantages, such as specialized expertise, technology capabilities, a comprehensive range of financial products, superior customer service or access to complimentary services (e.g. healthcare services or tax planning).

The financial services marketplace is crowded with many players serving the same customer segments. Strategy means bowing reluctantly to the reality that you do not have unlimited resources and capital. As such, your strategy will mean making tradeoffs; the question “Where will we play?” will need to be considered alongside the question “Where will we not play?”

HOW TO WIN

Focusing solely on the right financial planning segments, however, will not be enough. You then need to answer the question “How will we win in these target segments?” The first step in answering this question is usually to craft a unique value proposition (UVP) tailored to the target customer market. This proposition outlines the specific benefits and solutions the financial firm offers to address the distinct needs and preferences of its customers. Taking a customer-centric approach ensures that the value proposition aligns with customer needs and desires, creating a compelling reason for customers to choose your financial planning services over others. Firms may want their UVP to include unique capabilities such as “Financial Security and Protection,” “Family Legacy Planning,” “Retirement Readiness” or “Objective, Transparent Advice.”

Defining how to win may require making strategic trade-offs.

Defining how to win may require making strategic trade-offs. Financial firms need to prioritize certain aspects of their value proposition while acknowledging that they may not excel in all areas. The goal is to excel in the chosen differentiators that align with the firm’s strategic direction.

CORE CAPABILITIES AND MANAGEMENT SYSTEMS

The final two questions that Martin and Lafley say are crucial to strategy are “What core capabilities will we need?” and “What management systems will need to be in place?” Core capabilities are the distinctive strengths and competencies that give a company competitive advantage and enable it to deliver its value proposition to customers. These capabilities, ideally, are unique to the organization and serve as the foundation for its strategic choices. They encompass a combination of skills, knowledge, technologies, processes and organizational culture that set the company apart from its competitors. Some companies, for example, have developed a strong culture around financial planning, and have institutionalized a “lead with planning” approach where all clients start with a financial plan. Developing or establishing this culture can be challenging. These are the elements of core capabilities that must be evaluated and analyzed to see where there are gaps to be filled.

The final question “What management systems will need to be in place?” deals with the organizational structures, processes and decision-making mechanisms that support the execution of a chosen strategy. These systems ensure that the strategic vision is translated into action at all levels of the organization. They guide resource allocation, performance measurement and accountability to ensure that the company stays on track to achieve its strategic objectives. For firms seeking to expand their financial planning capabilities, this may mean changing the metrics they are using for key performance indicators. For example, measuring “new households” or “AUM” may not be sufficient to capture the effect that financial planning is having on your business. Other metrics around the client experience, share of wallet, advisor adoption or retention may need to be added to the dashboard. This will facilitate quick, informed decision-making and allow the company to monitor progress to make necessary adjustments.

Through this process, the company can learn from successes and failures, ensuring its strategy remains relevant and responsive to changing market conditions. Overall, when core capabilities and management systems are aligned, they create a cohesive strategy execution process. Firms focusing on a financial planning strategy will allocate resources efficiently, make clear and informed decisions, hold individuals accountable, and remain adaptable to changing circumstances.

WINNING EXECUTION

Developing the right financial planning strategy can seem head-spinning at first, as a blizzard of facts, data and options may make a sound strategy seem elusive to someone new to the process. Having a simple framework that breaks the process down to its essential elements will empower a firm’s strategy team to have a shared understanding of the path they will be taking and what success will look like when they arrive.

At the end of the day, all financial service companies exist to compete and to win in the marketplace. Strategy provides the roadmap that aligns the behavior of their employees and conduct activities to win in that marketplace. Having a mission, vision, goals and tactics is not enough. Strategic choices will need to be made using a proven process. Employing the five questions from Playing to Win will allow firms to navigate a very competitive financial planning market by developing their winning aspirations, deciding where they will play, defining how they will win, and determining what core capabilities and management systems they will need to be successful.

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