Executive Summary
As financial planning continues to grow, consumers increasingly have more and more access to qualified advisors. At the same time, the growth in the number of financial planners is leading to a troubling counter-trend - the more financial planners there are, the less differentiating it is to simply be a financial planner. As a result, while in the past financial planners might have competed primarily with stockbrokers, insurance agents, and do-it-yourselfers, now they're increasingly competing with... each other. And the trend is only exacerbated by the fact that large firms are increasingly steering their advisors in the same direction as well.
The outcome of this trend is a rising new pressure on advisors to focus and find a niche to establish true differentiation from the competition. Realistically, no one advisor can be the best at everything for everyone, but it is possible to be the best for a particular group of clientele, with a genuinely unique value proposition unlike what any other advisor provides. And the efficacy of this approach will only increase as search engines become better and better at helping to match people in need of help with the providers who can offer them the best solutions.
While most planners fear that establishing a niche will make the "pie" of potential clients smaller, the reality is that most advisors already take only a very, very tiny slice of their current pie, and for many the size of that slice is shrinking. By establishing a focus to the business, it creates a scenario where the size of the pie may be smaller, but the advisor has the potential to capture the entire pie! Or viewed another way, 100% of something is a whole lot better than 0% (or 0.00001%) of everything. Ultimately, the point is not to turn away prospective clients who don't fit your niche; it's to have a niche that's so well establish that the only people who contact you are those who seek you out for your niche... and that there are so many, there isn't time to serve anyone else, anyway!
Stiffer Competition For Financial Planners
As little as 10 years ago, a client-centric CFP competing for a client might have been going up against a wirehouse stockbroker, an "old school" insurance agent, and a do-it-yourself online brokerage platform solution. Today's landscape, however, has changed; it's now increasingly likely that a good financial planner is going to be competing for clients with... other good financial planners, also with the CFP certification (and perhaps other specialized credentials as well), also operating as client-centric fiduciaries on an RIA or hybrid platform. The end result? Slower growth as firms find it harder and harder to explain how their services are truly differentiated from everyone else. And the problem will only get worse as large firms mimic the approach as well; recent industry analysis by Cogent indicates that within just a few years, even 70% of wirehouse advisors will be operating on an assets-under-management basis, trailing only slightly behind RIAs.
Unfortunately, though, most financial planners seem to still be operating under the "old" framework, as quickly becomes evident in viewing their websites and marketing materials. After all, how many advisors still use some version of the following as their differentiator: "We provide customized, individualized financial advice to our clients, delivered from well-educated highly-credentialed advisors who have several decades of experience." Certainly, the wording varies from one advisor brochure to the next, but they all build around the same key points: 1) Personal financial planning customized to the individual needs of their clients; 2) Advisors who have the CFP certification or some other professional designation/education; 3) Highly experienced after years/decades of working with clients. In some cases, a 4th "differentiator" may have included operating as a fiduciary.
Yet the reality, as just noted, is that these are no longer differentiators! Any direction you look, high quality client-centric financial advice is on the rise, and is quickly shifting from being a value-added differentiator to being expected just to have a shot at attracting a high net worth client! The number of CFP certificants is up almost 75% from a decade ago. As the past 10 years have gone by, the average age of an advisor has increased - by almost 10 years! - making "experienced" (with perhaps some gray hairs to show for it) remarkably common. According to Cerulli, fiduciary RIAs and hybrid advisors are the fastest growing channels, taking market share from wirehouses (even as the wirehouses shift their business models to mimic them). And with regulatory efforts from both the SEC and the Department of Labor, a uniform fiduciary standard could soon become the law of the land.
While all of these trends are good news in that it lifts the standard of advice for consumers, it has also created a "be careful what you wish for, you might get it" scenario for advisors who have advocated for better advice for consumers: by lifting the standards for all, having higher individual standards in your own business are less and less often a relevant marketing differentiator.
Finding A New Financial Advisor Differentiator
So what's the solution in a world where financial planners and their services are increasingly similar to each other? It's time for more advisors to really establish a true Unique Value Proposition.
Yes, the UVP marketing buzzword has been around for a long time, but few advisors seem to have truly internalized its point: if you want to grow your business, you really have to demonstrate the unique value you bring to the table. And just being a financial advisor with credentials and years of experience developing customized, individuals financial plans for the needs of their clients just doesn't cut it. That's not an end point for differentiation anymore; now it's just table stakes, or the minimum to get a foot in the door.
So what is truly unique in the world of financial planning? Since the service of financial planning itself is defined by a recognized process and practice standards, it's difficult to be unique with respect to the delivery of financial planning (though ultimately providing a genuinely unique client experience could be a differentiator). Instead, the key to differentiating is the kind of expertise you have, or the kind of clientele you work with. In other words, it's all about having a niche.
The reason why having a niche matters more than ever in this environment is that it creates an opportunity to really have something at which you are unique and the undisputed "best" to serve your target group of clients. Realistically, you're not going to be "the best" at financial planning; there's too much competition. While you might be "the best" in your local geographic area, the reality is that geography as a niche will be less and less relevant in the future, as the capabilities grow for online web-based (and especially, video-based) service models and digital search makes it easier for prospective clients to find the best advisors. But if you want to be the best at planning for new parent finances, financially wise women, or some other specific, narrow niche, you really can deliver a unique value and service that has no competition by choosing to target a clientele that no one else targets.
And fortunately, in the digital age, it will actually be increasingly feasible to build a narrow niche with a broad national clientele, relying on the power of search engines to help those clients find you, the one best expert to help solve their problems!
Do Niches Make Your Business Smaller, Or Bigger?
It seems there's a common point of fear around focusing on a niche. It typically goes something like this: "I'm struggling enough to grow my business now, and can't seem to find enough new clients to meet my goals. How on earth could I be better off by limiting my pool of potential clientele to a small niche?" Yet to raise this objection misses the fundamental point: being everything to everyone means you're not unique to anyone, which means while you could do business with everyone, there's hardly anyone who wants to work with you amidst the sea of comparable other advisors out there.
On the other hand, having a clear niche means, at least for that subset of clientele, you are the one true unique best solution for their needs. In other words, the pie might be smaller, but you can have the whole pie, because you're genuinely differentiated as the best provider of solutions for anyone tied to that pie... which can actually be far more successful than having an infinitessimally small slice of the large pie! For instance, the video below is an introduction from Dave Grant of Finance for Teachers. If you were a teacher, who would you realistically choose? Another experienced, credentialed, we-do-everything-for-everyone advisor, or Dave?
Intro video from Dave Grant on Vimeo.
Ultimately, this is really the whole point of differentiation. You can't focus on being different than your competition while simultaneously undermining your own differentiator by insisting you can serve everyone equally well. It's not realistically feasible, and prospective clients won't believe and buy into it anyway; whether it's a teacher, or an eye doctor, if one has to choose between three advisors, where Advisor A does everything for everyone, Advisor B does everything for everyone, and Advisor C specializes in teachers or ophthalmologists or whatever group, what are the odds that the individual picks anyone besides Advisor C? Almost nil. So what happens in the long run? A few mega firms that have the brand recognition and credibility to really be everything to everyone get some clients, and a long list of "long tail" niches eventually picks off every remaining new client that's available, until there are none left for the generalist.
The point is not to take such a focus on your niche that you turn away every other client who doesn't fit the niche. The point is to have such a clear point of differentiation that the only people who seek you are out are those people in your niche, as you're so clearly the best fit for them that they're attracted to your firm and wouldn't possibly want to work with another advisor... and no other clientele is interested simply because you're clearly not for them (and arguably, if you're really that focused on a particular type of client, you shouldn't be very good at servicing others outside your niche anyway!).
In any event, the bottom line is that as fiduciary, advanced credentials like the CFP certification, and financial planning become increasingly mainstream - a trend that appears unlikely to revert anytime soon - the profession seems to be crossing a point of no return, where it's no longer viable to be a generalist for everyone and just let the fact that you're an experienced certified financial planner be your differentiator. Instead, it will become increasingly necessary for financial planning professionals to have a niche to survive and thrive.
Great article! The financial planning industry seems to have reached a competitive equilibrium – everyone is doing it and every seems to be doing it in a similar way. Another aspect of standardization seems to be in the “customized” recommendations that seem to come from planning practitioners using the same pool of frequently recommended mutual funds and ETFs.
I think Dave Grant’s vid nails the execution of the idea — simple, concise and easily understood in a sentence (or less). Love it