The news last week that one of the founding partners of Iconiq was leaving the firm emphasized how the wealth management industry remains a cottage industry. Our blog this week will look at the pros and cons of cottage industries. We will also examine how a cottage industry can become an enduring industry that will survive multiple generations. Is this a goal advisors and their clients want and are they willing to make the necessary changes? We believe it is worth considering.
Cottage industries promote the existence of big personalities that define the company and insure the clients know what they are getting if they work with the firm. Iconiq has done a great job answering this question. Is it the right answer for you? The wealth management industry is very competitive forcing firms to differentiate themselves from their competition. A big personality is a memorable differentiator but it is ephemeral.
Most companies strive to create a brand. This will help your SEO and will ultimately increase your firm’s value. Creating a brand is easier said than done. Building a brand starts with the firm’s executives and their marketing message. Most established brands have defined their firm on the products they provide. New independent firms use other firm’s products and differentiate themselves through their unique customer service. Regulators have stepped into this debate and characterize products under the Suitability Standard and customer service under the Fiduciary Standard. Some clients prefer great products and others prefer great customer service.
Policies and Procedures
Cottage industries are order takers. If the client wants a shirt you design and deliver a shirt. The client is happy until the designer/manufacturer leaves. This is not the end of the world for the client but it is a nuisance to find another person that they trust. This reality created the need for firms to evolve from cottage industry firms to brand name firms. Brand name firms create policies and procedures to insure that clients know what to expect when they do business with the firm. Seems like an obvious goal but there are some unintended consequences of branding. The biggest issue is who owns the client?
We all have a question to answer. Do we want to be Charles Merrill [JS1] [JS2] [JS3] or Charles Schwab? Not an easy question to answer. The markets have an answer.