The Evolution of Competition

Amar Pandit , CFA , CFP

Amar Pandit

A respected entrepreneur with 25+ years of Experience, Amar Pandit is the Founder of several companies that are making a Happy difference in the lives of people. He is currently the Founder of Happyness Factory, a world-class online investment & goal-based financial planning platform through which he aims to help every Indian family save and invest wisely. He is very passionate about spreading financial literacy and is the author of 4 bestselling books (+ 2 more to release in 2020), 8 Sketch Books, Board Game and 700 + columns.

Competitive Advantage is a powerful term that every business must understand deeply. This simply means the advantage you have over your competitors. However, your competition has evolved dramatically over the last 2 decades.

Competition in the late 1990’s or till 2009

  • Banks
  • Other IFAs
  • Brokers
  • Some Wealth Managers (the industry was evolving)

Competition Today

Besides all the above, there are

  • Direct
  • Online
  • Bionic Financial Professional (Digital + Human)
  • Specialist Firms
  • Firms with Superior Wealth Offerings
  • National Distributors, Regional Distributors
  • Expectations of a Digital Experience from Consumers
  • Bullshitters who spread nonsense through available media channels.

One look at the above and you can see how tough the competition has become. Competition is now faster, cheaper, and better.

The value proposition of direct is cheaper.
The value proposition of direct platforms is faster and cheaper.
You can list down similar value propositions for all types of competition.

Where do you think is the source of your competitive advantage?

Think about it.

How are you building this?

Some guidance: A lot faster and cheaper has been done. Trying to beat faster and cheaper will get you nowhere. Yes, you must adopt technology and be faster (this is not even a choice anymore). Providing access and cheap surely has its appeal but then you need huge volume and a strategy to figure out how to truly make this work. This is a losing proposition for practically everyone.

Faster and Better is the space for you to be. Firms that obsess about taking care of their clients better than anyone else will be the firms of the future (this line is insightful and thus you would be served well by thinking about it). Firms that constantly learn, adapt (change) and build world class client experiences will rule.

Many who built their businesses in the entry load era have mark to market to rely on. There is an illusion of growth in many firms simply because AUMs have gone up. Some of them do not feel the need to do much as long as mark to market growth is happening and some new clients are walking through the door. They are unable to witness what is really happening beneath the surface. The business is getting weaker from the inside and organic growth (in terms of high-quality new clients signing up) has slowed down. High quality new client acquisition is a key source of growth, and a key component of your equity value is growth.

A factor that is very important in M&A is the last 3 years of growth of your firm (as this is linked to the future growth of the firm too). Do a sincere analysis and check out how strong this number is. It does not matter what you did 10 years back or 20 years back because if your last 3 years numbers are stagnant or going down (remove market appreciation in this calculation), there is an erosion of real value that is happening. Most people are unable to see this erosion because they can’t feel it because AUM is growing, and some clients are walking naturally in the door.

The cause of your last 3 years of growth (or slowdown in it) or performance lies in your competitive advantage. It is not how good you were in the past, it is how good you are NOW.

The late Jack Welch’s quote serves as the perfect end to this post “An organization’s ability to learn, and translate that learning into action rapidly, is the ultimate competitive advantage.

How are you significantly better (not marginally better) than what is out there? What is your Competitive Advantage NOW?

If you know the answer, congratulations but if you do not, it would pay to find out the answer to this question.