What’s Your Edge? Identifying your RIA’s Sustainable Competitive Advantage

By Amy McIIwain, President, Financial Social Media on Friday, November 11th, 2011

I believe that the most important component of an RIA’s strategic planning process is identifying and fostering a genuine “sustainable competitive advantage.”  Competitive advantage is simply how you do what you do in a way that distinguishes your firm from your competition.  This alone is, of course, important and exists in some way if an RIA has successfully won business in competitive markets.  A sustainable competitive advantage, however, is one that you can protect from replication by competitors. It represents the distinctive competencies that your clients value and that you can control.  This ultimately becomes the core to your value proposition.  

To maintain and broaden existing relationships, superior client service, performance and relationship management certainly rule the day.  The key to capturing new relationships rests entirely on your ability to develop, invest in and foster a sustainable competitive advantage that will distinguish you from the myriad of options available to your prospects.  It’s what drives your ability to grow revenues, protect pricing, improve profit margins  and, ultimately, determines your RIA’s enterprise value.  Additionally, a sustainable competitive advantage will:

  • Spell out the distinctions between you and your competitors

  • Add clarity to your positioning with clients and prospects

  • Help your clients and partners describe your firm in a way that will improve referrals

  • Guide resourcing and outsourcing decisions by helping you maintain focus on what keeps your firm competitive

The two primary sources of an RIA’s sustainable competitive advantage are leveraging capabilities and neutralizing competition.

Leverage Capabilities

The key to leveraging capabilities is to distinguish yourself by how you deliver services, rather than by which services you deliver.  Building an array of competencies is the “cost of admission” for today’s RIA and is something that is replicated by new firms every day.  Your sustainable competitive advantage starts with these competencies but really comes from how you deliver them and what specific activities you carry out to deliver value to your clients.

Neutralize Competition

This involves developing a deep understanding of your competitors’ positioning and mapping your RIA against this. (Note:  Reading your competitors’ publicly available materials is just a starting point.  Effective competitive analysis should also include a formal process of ongoing collection of competitive intelligence.)   A useful tool for portraying your competitive landscape is a “strategy canvas”, in which you identify 5-8 attributes that drive client decision making and plot each competitor across these attributes.  Understanding where your RIA sits on this canvas will allow you to clearly demonstrate areas where you excel and those where you have (ideally) chosen not to excel.

Sustainable competitive advantage is the cornerstone of an RIA’s practice management efforts, with rewards that will more than justify the investment of time by your leadership team.  Tackling this exercise in isolation though, will likely produce lackluster results.  Like most strategic endeavors, this exercise is intended to be one of many components within a broader strategic planning process.  By making a commitment to strategic planning, you will elevate your firm’s competitive position, set the stage for profitable growth and, ultimately, enhance the enterprise value of your RIA. 

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