Over the last twelve months, I’ve noticed a growing divide within the financial services industry. Some businesses interpret the FCA’s reviews as an attack on costs, making cost-cutting their primary focus. Others, however, place greater emphasis on value over cost. In this final blog, I explore the dangers of the “race to the bottom” and why prioritising value is critical to sustainable success.
It’s All About Cost
A significant part of the industry equates lower costs with higher value. Fund managers often promote low-cost solutions as the answer, supported by academic research linking reduced costs to better client outcomes. However, this singular focus on cost creates challenges for firms.
Articulating their unique offering often becomes difficult for those whose proposition revolves around low-cost solutions. They may end up cutting corners elsewhere, diluting the client experience and diminishing the value they can offer.
Shifting the Focus: Value Over Cost
While my background leans towards active fund management, I recognise the merits of index strategies. Removing cost from the equation, the critical factor in managing portfolios lies in the depth of research and understanding client needs. Whether active or passive, the ability to demonstrate real value through tailored solutions and outcomes matters most.
Two firms I’ve encountered illustrate the power of focusing on value:
Firm A—Operating for over 20 years, this firm has developed a client-centric approach that emphasises understanding clients’ values, goals, and aspirations. Their consistent value-led approach ensures client satisfaction and loyalty.
Firm B – Established five years ago, this firm uses technology to deliver a similar value-focused proposition with enhanced efficiency, enabling cost-effective solutions without sacrificing quality.
Both firms use index strategies, but neither prioritises cost in their messaging. Instead, they highlight the value of their planning expertise, and clients respond positively to this.
The Danger of Cost Over Value
Confusing cost with value risks pushing businesses into the “race to the bottom.” While cost control is important, reducing everything to price can undermine the broader client experience. Firms that fail to communicate their value proposition effectively will struggle to differentiate themselves, ultimately risking their viability.
Summary
The key takeaway is this: understanding and articulating your value proposition is essential for long-term success. Cost is part of the equation but not the whole story. Firms focusing solely on price risk losing their way, while those prioritising value can achieve enduring client relationships and business growth.
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