imgbd Futurist Edge

Tap this hidden capital to win against robos and direct

In a nutshell

Will machines replace advisors? Will lower cost DIY solutions replace personalized guidance offered by advisors? These debates have been raging for a while now, and one conclusion that most experts draw is that there is space for all three: robos, direct and advisors. The focus of this article is not about comparing the three propositions. Its about putting a spotlight on one key aspect that advisors should focus on, to conclusively win the battle against robos and direct. This aspect in management jargon is known as structural capital. Its something that most advisory firms have in abundance, but very few actually leverage intelligently as a competitive strategy. To be future ready, its time we understand what structural capital is and how to use it to build a sustainable competitive advantage.


Management gurus suggest that "intellectual capital" is the most potent competitive weapon - not just for advisors, but indeed for any business in any industry. Intellectual capital is broadly broken down into three components:

Human capital: the talents, creativity, skills, and abilities of a company's workforce

Structural capital: the accumulated knowledge and experience that a company possesses

Customer capital: the established customer base, positive reputation, ongoing relationships, and goodwill that a company builds up over time with its customers.

Human and customer capital are familiar territory

The first and the third are familiar territory for most IFAs. We all know the importance of upskilling ourselves and our teams, the importance of continuous education to keep sharpening our advisory skills and in general, the importance of knowledge in this profession. Likewise, we also are very familiar with the importance of relationships in this business, and the importance of nurturing these relationships based on trust, integrity and diligence. Relationships drive referrals, relationships drive wallet share - in short relationships drive an advisor's business. We know all this.

Structural capital comes from channelizing experience

It is the middle aspect that we need to focus on a whole lot more - structural capital - which stands for the accumulated knowledge and experience your firm possesses. Your firm has served numerous clients across market cycles. Your firm has held clients' hands through the ups and downs of markets, through the ups and downs of their own personal circumstances. Your firm has counselled numerous clients and prevented them from making costly blunders driven by greed and fear. Your firm has learnt from past mistakes to fine tune its investment philosophy. Your firm in short has rich experience gained over the years, which is contributing very significantly to the quality of advice and service that it offers to clients today.

Let's take a moment to look at these quotes on experience:


A lot of what makes you a good advisor today is your experiences over the years - the mistakes you made, the lessons you learnt from them, the corrective actions you took from the lessons you learnt. Your firm today is a treasure trove of rich experiences - all of which go into making it the quality firm it is today. It is in reality, your firm's experience which gives you a cutting edge in terms of your ability to anticipate client needs and proactively offer relevant solutions to them. That is what your core strength really is.

Converting experience into structural capital

In order to convert this experience into structural capital - one that becomes a source of competitive advantage, you need to do two things:

  1. Institutionalise your experience into processes, manuals and exception handling guides which will ensure that each member of your team is able to instantly draw on the storehouse of experience your firm possesses, to serve clients better. There is no point in experiences remaining in your head and the heads of 1 or 2 of your senior most colleagues. All the learnings from your collective experience need to find their way into documentation which your growing team can readily access. That's when you are really enabling your firm to leverage your experience for the benefit of all clients that your firm serves. When writing processes and manuals, it would be very helpful to keep a track of what the original process was, what experience made you revise the process and what the new process now is. Similarly, whenever you or your team members got into any fire fighting mode to resolve any exceptional situation for any client, write down a brief note in the form of an exception handling guide for the benefit of all team members. The next time around, your office will be able to deal with similar situations a lot better - whether you are readily accessible or not. It would also be very useful to create internal client experience notes that document any peculiar or challenging client interactions you or your team members had, with notes on how the situation was handled, what could have been done better, lessons from the experience. These notes will be priceless for all new members of your team, as they will be getting the distilled wisdom of the firm on a platter to imbibe from and hit the ground running. That's when you are really leveraging your firm's experience and realising its potential to provide great advice and exceptional service.

  2. Proactively communicate to clients the benefits they get from drawing on your firm's rich experience. They benefit from learning from your experience, so that they don't need to make the same mistakes you made years ago when you were inexperienced - that's the key takeaway to be communicated. Create a periodic series of communications around case studies of client interactions which gave rise to rich takeaways. Without giving names, talk about the scenario and how your firm's experienced handling enabled clients to get a satisfactory outcome. It could be a case of sensible advice, it could be expertise in resolving a tricky operational issue, it could be timely action that protected capital - it could be any instance that demonstrates how your clients got great outcomes by leveraging your firm's expertise and experience. Keep reiterating in each such communication a simple truth: that your firm has built this expertise over years only by drawing on experience, and this experience is now available to your clients, so that they don't need to go up the same learning curve.

Make structural capital your winner

For clients who may be considering going direct, a regular series of such communication which highlights how your clients are actually leveraging your experience and expertise, can become a big factor in a decision to remain with you. For prospects who are evaluating your services vs a robo or vs going direct, a well made presentation of a collection of these case studies can bring home the point very clearly about what exactly they don't get in the alternatives, which they will get only from your firm.

Its time for advisors to capitalize on their experience by converting it into structural capital - first by institutionalizing it and then by communicating it effectively to clients and prospects.


Content is created by Wealth Forum and must not be construed as an opinion by DSP Blackrock MF.

Share this article