Do you have a moat?

Asset managers and analysts often talk about moats. If a company is to be deemed an attractive long-term investment, it needs to have resilience in the face of volatile external conditions. 

A moat represents that evergreen value that can strengthen a portfolio, and it often means the company has become entrenched in a niche or has developed an exceptional competitive advantage that insulates them from potential threats.

That’s perfectly sensible investment advice. So why don’t more investment advisors follow it?

While this principle is easy enough to grasp, it’s much more challenging to implement for your own practice. That’s why most advisors have a competitive advantage that can be summed up as, “I do everything for everyone at a price point that works for me,” and that’s simply no defense at all. If an industry shift or some other unexpected change takes place, it’s likely they will be vulnerable to its impact. 

Those who have dug moats around their advisory firms do things differently. They offer a much-needed service in a singular way to a specific group of people.

That means there is a demand for their expertise, competitors will have a hard time replicating it, and it has clear relevance for an audience that can be targeted. Quite a lot would have to change in order to put that kind of firm at risk.

So ask yourself if you’ve really dug an effective moat, or if you’re just hoping you won’t need one.