Virtual Financial Advisor: Next Big Thing or Expensive Fad? #Article

This article was originally published on ModelFA.com

Summary: It’s easy to see the appeal of the virtual financial advisor business model. You get to work wherever you can put up a laptop and connect to the Internet. You can fill your practice with ideal prospects across the country, not just those who happen to live in your zip code. You can keep your schedule flexible — and your overhead expenses really low. What’s not to love?

However, the reality of running a virtual financial advisory firm isn’t like the brochure. Advisors who want to succeed must build a new set of digital influencer skills. Competition is fierce and well-funded. In this article, I walk through 5 reasons why a virtual firm presents a unique set of challenges. In the end, though, determined advisors can make it work — as long as they are willing to do the right things to put their business on the map.

The rise of the virtual financial advisor business model is what happens when several trends collide in a perfect storm. More young advisors enter the profession and want to work remotely, without the limitations posed by their zip code. Niche marketing has been growing in popularity, with advisors using technology to reach their targeted audiences more and more accurately each year. Finally, many consumers are clamoring for accessible financial advice that speaks to them — and is free from product sales. 

Big consulting firms and industry analysis seem to confirm this. McKinsey is estimating that 42 million households, representing $66 billion in annual revenues, are prime candidates for virtual advice. The same firm reports that many consumers are open to receiving financial advice from someone who doesn’t live or work near them. “Consumer surveys across mature markets show that at least 20 to 30 percent of mass affluent and affluent consumers would use a dedicated financial advisor based outside their local area, and a larger share are open to the concept.”

In light of the above, the idea of a virtual financial advisor makes sense — and in theory, it should work. After all, today’s technology makes a physical office location less relevant. Nearly all transactions and interactions can be handled digitally, from account transfers to meetings. 

And yet, after working with 300+ advisors on their strategy and marketing, I would argue that for most financial advisors, this “virtual” take is likely to be an expensive fad. 

Why is that?

I can name 5 reasons

Reason #1: It’s harder for a virtual financial advisor to build trust

A few years ago, I read a great book by David Maister and Charles Green called The Trusted Advisor. Inside, the author spells out this formula for building trust:

Trust = (Reliability + Credibility + Intimacy) / Self-orientation.

Trust is paramount in our business since our success is largely a function of how well we build relationships.

Yes, it’s possible to build trust through both online and offline interactions. However, building trust is more complicated when you’re not interacting with people face to face. We can see that if we follow the trust formula, one component at a time. 

Can you be reliable as a virtual planner?  Absolutely. You can show up on a Zoom conference call on time as a signal that you are there as promised, ready to solve the client’s problem. 

Can you be credible?  Sure. If you are adopting progressive business models, you’re probably a CFP, CPA, or CFA (or on your way to achieve one or more of these designations).  

But the million-dollar question is, can you build intimacy without in-person interactions?  

I’ve found that building “digital” intimacy is VERY difficult — unless you are prepared to invest a lot of your time into producing content and nurturing relationships online. This is a significant barrier for most advisors, as it would require them to spend most of their time being a marketer and an influencer — not being a financial advisor.  So, unless you find that online influence-building is your natural talent, you will face an uphill battle for attention.

Reason #2: Running a virtual practice requires you to produce original content 

If you want to work virtually, there’s simply no way you’re going to be successful without producing original content.  

I know that this point will raise resistance in some of you who feel that your expertise and credentials are enough to earn you attention. My experience looking across many advisory practices tells me that expertise isn’t enough. You have to create a blog, shoot videos, or host a podcast… or possibly all three. 

And not only do you have to do one or all of these things… You need to do them consistently for a very long time. And you have to get remarkably good at doing them.  

Don’t believe me? Just scroll through your Facebook, LinkedIn, and Instagram news feeds…There are hundreds of businesses trying to get your attention at any given moment. The ones that win are those that have scroll-stopping power. You have to ask yourself whether you’ve got it in you. 

And here’s something I noticed about those in the financial services industry who do manage to crack that code: They end up transitioning out of the advice-giving role to become speakers, consultants, or public figures in the media. Or, they join a larger firm and become their public face (or head of marketing). 

Another trend is that many successful virtual financial advisors end up pursuing media and marketing or industry consulting.  Which makes me wonder whether the virtual advisory firm business model is inherently limited financially. 

Reason #3: Compliance will hamstring your marketing efforts

Compliance is a factor for every single advisor, but it’s especially relevant for virtual financial advisors. The key reason is the sheer volume of content they need to build a relationship with someone across device screens.  

Those who are in the financial planning business know that they are already competing against hundreds of financial coaching firms that are not limited by their licenses. Those competitors can run testimonials. They can say anything they want in their marketing.

You, on the other hand, cannot do that.  By the virtue of playing by the industry’s rules and registering your firm, you effectively give up the most powerful form of advertising available for service businesses, which is reviews and testimonials. Naturally, the onslaught of “proof” from “financial experts” (and the lack of similar “proof” on your page) confuses consumers. It also makes it difficult and expensive for real advisors to cut through the noise.

Bottom line: Because your competition can run testimonial ads and secure reviews from their clients, they can make themselves appear more credible and reliable then you are. And for an online business, appearances are incredibly important. 

Reason #4: Competition will drive up your client acquisition costs

Every day, you see articles about Artificial Intelligence, robo advisors, trading commissions getting slashed to zero… The industry is changing quickly, but how much of this change is relevant to a financial advisors ability to build a practice?  

Not a whole lot, in my opinion. A neighborhood financial advisor who’s building relationships face-to-face doesn’t have anything to worry about. His or her business will persist for a long time.  

But advisors that want to work virtually don’t have the benefit of a face-to-face connection. Getting someone’s attention is hard and expensive, and it’s getting more expensive by the day.  In this arms race, virtual advisors are competing with huge corporations that have enormous marketing budgets and an arsenal of products and services to cross-sell.  

Large companies have historically spent most of their advertising budgets on traditional media and brand, but soon they will be shifting the spending to digital and social media to follow consumers’ attention.  And there’s a twist to this strategy. It likely won’t be traditional marketing… You will see more celebrities and public figures hired to promote their brands. 

We’ve seen Creative Planning test these waters with Tony Robbins before their “amicable split” earlier this year.  The level of “celebrity” will vary by company, but the consequences to rank-and-file virtual financial advisors are likely to be devastating. If large financial services companies hire dynamic, visible, and trusted public figures to be the face of their brand, those individuals will become your competition. 

And the bottom line is… Very few advisors have the kind of a presence, in writing or on video, that can compete with a talented, likable, and compelling public figure. 

Reason #5: You will (eventually) lose the SEO game 

Most advisors that I meet at conferences get their leads through referrals, COIs, and web traffic from NAPFA and the Fee-Only Network. And it’s working… for now. 

However, big financial services organizations have already begun to invest heavily into search marketing. That includes written content, podcasts, video, as well as the emerging voice-first search content. The sheer volume of their content, combined with backlinks generated from their public relations strategy, are likely to place their name above yours in a typical Internet search. 

Why does that matter? Because when consumers don’t have the expertise to choose the best financial advisor, they will likely default to the search engine’s ranking as a proxy for advisor’s authority and quality. Figuring out how to improve your ranking will take months of painstaking work and no guarantees. In the end, it’s possible that the big company has more resources to out-test, out-backlink, and out-rank you for your keywords.  

Virtual Financial Advisor: Next Big Thing or Expensive Fad?

So, if you’re running a virtual practice, or if you have your heart set on it, what are you supposed to do? 

I think you have a window of opportunity before you’re priced out of the market. I would guess 5 years, but it could be less. You need to have the right plan and do this in a specific way, because you have no time to waste. 

If you are determined to give it a go, you need to start by perfecting your content and influence skills. Doing that requires a mental shift, as you must see yourself as a marketer and influencer first — otherwise you won’t get to be a financial advisor. And remember, even though social and digital marketing strategies can work well, they are generally meant to supplement local business development. 

This article was originally published on ModelFA.com