Executive Summary
Much of the marketing and practice management advice in the financial advisory space comes back to 1 recommendation: Specialize in a niche. Niching offers several advantages, allowing advisors to be more specific in their marketing, more targeted in their prospecting calls, and more efficient in their processes (since clients within a similar niche are likely to have similar problems, especially in niches of profession). However, raising the question of whether every client can be classified into at least one particular niche leads to another compelling hypothetical question: If advisors were to choose to narrow their practice down and serve only a specific group of people, would they be leaving other would-be clients out – not out of work with a specific advisor, but with all advisors who choose to specialize in niches?
In our 123rd episode of Kitces and Carl, Michael Kitces and client communication expert Carl Richards discuss the validity of the implicit assumption that as advisors niche, every future client will fit into a niche of some sort, and whether this assumption potentially promotes an exclusionary model of providing financial advice, leaving out individuals who simply aren't profitable for advisors?
Most commonly, niches present as particular needs of a firm's clients. These needs are often understood in terms of a client's occupation (e.g., tech employees who need help managing equity compensation options), stage of life (e.g., pre-retirees with employer pension annuity choices), political or religious affiliations, or significant life events that create central themes and recurring concerns that an advisor can specialize in (e.g., divorce, widowhood, family members who develop special needs) – and because of the targeted services advisors offer to satisfy their clients' needs, they increase their value and the efficiency of their practice.
A second dimension to niches, however, involves the perceived profitability (or lack thereof) of a niche; if too few people face an issue, if the need isn't painful enough to be 'worth' the advisory fee, or if the client of the niche is simply unable to pay at a rate that would allow the advisor to support themselves, then making a certain niche the specialty of a viable practice becomes much more difficult. After all, in order to be sustainably profitable, a chosen niche must also be accompanied by the client's willingness and ability to pay.
While there is no 'silver (or blue) bullet' for financial advisors looking to serve those who may otherwise lack access to financial services, differentiating themselves by narrowing their focus on a specific area can still be a good first step. At its most extreme end, this might require an advisor's highly specialized area of expertise, allowing them to better serve those who might otherwise miss out because their issue is too narrow (because the depth of knowledge required to serve those who can't be served – because most advisors generally lack the required expertise to address their particular issues that are so highly complex and specific – represents a niche in itself!). And for financial advisors who want to offer planning services to individuals who may not have the means to work with a financial advisor on an ongoing basis, specializing in certain niches can even prove lucrative enough to profitably sustain incorporating pro bono or low-cost services as part of their practice.
Ultimately, the key point is that while accessibility is a real issue – both for prospects whose needs are highly specialized and for those who may not have the means to afford planning services – advisors can find sustainable ways to serve those who may have been excluded from traditionally offered advice services. Because as the industry continues to grow, so too will the demand for accessible financial planning advice!
Authors:
***Editor's Note: Can't get enough of Kitces & Carl? Neither can we, which is why we've released it as a podcast as well! Check it out on all the usual podcast platforms, including Apple Podcasts (iTunes), Spotify, and Stitcher.
Show Notes
- FPA Retreat
- Tim Bauer
- Kitces Report: How Financial Planners Actually Market Their Services (2022)
- Steve Wershing: A Niche Is A Need – Avoiding The Biggest Mistake Of Marketing
- Cerulli Report: U.S. Advisor Metrics 2022
Kitces & Carl Podcast Transcript
Michael: Well, good afternoon, Carl.
Carl: Hello, Michael Kitces. Hey, I have a question for you before we dive in.
Michael: Okay. What's the question?
Carl: Do you remember being on a panel with me at an FPA Retreat and me and Tim Bauer… you, Tim Bauer and I, when we were little...?
Michael: This is like 10 years ago.
Carl: Oh, longer than that. We were young...nobody knew any of us.
Michael: What were we talking about?
Carl: It's where I first mentioned the term "real financial planning." Do you remember this? I think we were in Florida and it was you, Tim, and I, and we were just...I don't know how that they found the 3 of us, 'cause we were just little dudes doing work. You don't remember this? Well, you've been on so many of those that you just...
Michael: Yeah, I don't remember the conversation, what we were doing. I do remember having that panel with us talking about just future evolution of planning because that's kind of the conversations we like to have at retreat. And the whole dynamic, well then and still, of there's all these people that say they're doing financial planning, but they're not really, or they're only doing it because it's means to some other end. And you went further with "real financial planning." I started calling them "financial advicers" to separate them out. I feel like there's a lot that came forth from that. Tim still likes to talk about real financial planning and life planning.
Carl: So good. It was just interesting to think back on those days and Alan being around, and there's so many folks that have been around for so long making such an impact. It's been fun to watch everybody. So anyway, sorry...
Michael: Shout out for FPA Retreat. It makes wonderful conversations.
Carl: Exactly right, memorable forever.
Michael: So ironically in that theme of calling back some old conversations, so I'd...well, obviously, we've had the beat for many years now around the value of finding a niche and pursuing a niche as an advisor. We've written about this on Nerd's Eye View for 10-plus years. And so I had a wonderful question...
Carl: Did you say "niche"?
Michael: Niche, don't start, Carl.
Carl: First of all, we're going to talk about niches again, this niche thing everywhere you go, "niche, niche, niche".
Michael: Yes. But to be fair, we're going to talk about it from the perspective of someone who's challenging the assumption a little, which I appreciate.
Carl: I know. That's why I'm excited.
How Niches Impact Client Fit [2:36]
Michael: You can challenge us. So the comment that came in was, which I think is a really good criticism worth talking about, the idea of every advisor finding a niche has the assumption that every client will fit into a niche.
Carl: That's so good.
Michael: Is this a valid assumption? Is this assumption right? Is this assumption wrong? As this person put it, "I would just love to hear Kitces and Carl debate this assumption." So I guess I've been painted into one corner by my historical niche stance and you have another, but I've got some views actually on both ends of this. So I thought, it's an interesting conversation as we talk about the value of niching for advisors. Are we implicitly assuming every client has a niche, is that a valid assumption? How should we think about this?
Carl: Meaning, does every client fit in some...every human out there that we refer to as "clients" fits in some category that an advisor would want to serve or might want to.
Michael: Yeah, I think that at least that's the implication. If every advisor's going to choose a niche, the implication is, well, every client who needs service has to fit a niche. Otherwise, there's clients who need advice and advisors who won't serve them. Like, "Oh, I'm sorry, you fit none of the available niches on the list, you shan't be served here." But I think it's a good question as we keep talking about...
Carl: I agree, it's a totally good question.
Michael: ...advisors getting more and more specialized in what they do in particular niches. I guess, so I think, is this a risk from the advisor end? But I think, to me, there's even sort of a more cosmic...as a profession, are we going to leave a segment of the world unserved if we all go down our little nichey routes and suddenly there are clients who don't fit a niche – if that's true, that clients don't fit a niche. So I guess the first question, even I would put to you just sort of on point to this discussion… There's an implied assumption here: every client should be able to fit into some niche. Is that a valid assumption?
Carl: Yeah. I feel like I'm going to do something that's it's a great risk because I just want to...and I want to do it with deep empathy because I do this and we haven't identified who said this, I hope they listen to it and I want them to know I'm doing this with a deep, empathetic hug. But part of me is sort of like, who cares? It feels a little bit, and again...
Michael: A part of you is what?
Carl: I can't say it again. But it feels like an interesting debate. But I want to point to 1 thing. I'm really stumbling around here because I want to do this with deep empathy. So much of our really...we spend a lot of time on questions that are places to hide. And I'm not even saying this person's doing it cause they sent it as an interesting question, but I'm just saying there would be a temptation here. And we see this a lot with niches. So maybe I can go in that direction. Please, whoever asked this question, love, deep empathy, this isn't about you. We see this often happen a lot with niches where people will spend a bunch of time thinking about things that don't actually really matter so they can avoid doing the work. Like what niche, how deep should I go? How narrow should I go?
Michael: You're still raising the question, are we potentially putting this out there because in reality we just don't want to have to pick a niche and this is like a way to avoid making this decision?
Carl: This person isn't doing that, this person isn't doing that. I just think niches generally... it seems to be one of the subject areas because it has to do with marketing. And one of the reasons people don't pick a niche is because it's really scary as a human being. We think about this every week at Behavior Gap headquarters. Should we just put a stake in the ground and serve lifestyle financial planners like the business I built? Should we just say, "This is only for…" well, why don't we do that? Well, it's scary. That's why. So it's the same problem. You just really don't want to put yourself on the hook, so you look for all sorts of ways to think about it differently and think, and think and think. So if we can just caveat the conversation with that of like, "Hey, the people need..."
Michael: I think that's fair, we...
Carl: Just like a warning. Warning, could be a place to hide. Cool. Then the actual question is super interesting, to be honest. I know it feels to me like if you have an occupation... we kind of covered a huge chunk of the world. If you have an occupation, it seems like you fit in a niche. If you don't have an occupation and you're retired... It seems like if you have a financial... So my definition of a niche, or at least niche marketing, my way of thinking about it is, from the advisor's perspective, find a problem you're interested in solving... I like that idea because I want to remain interested. Find a problem you're interested in solving, and then find a group of people with that problem. And an occupation may be a shortcut to that. That's how I think about niches. So if you have a problem, and by problem, I don't mean negative, I just mean textbook. It's something that needs to be solved. If you have things that need to be worked out with money and there are other people like you, you fit in a niche. Is that too much to be...? I'm just shooting from the hip.
Michael: No, I like that framing. And actually, my head goes the same place that as you're framing, look, a niche is not much more than a problem that needs to be solved. And if there are multiple people who have the same problem than being the solver of that problem makes you a niche advisor for people who have that problem. Steve Wershing who's written and waxed more eloquently than I can even about niches, he likes to frame. It's just like, look, a niche is a need, which I think is a version of the exact same thing. I need a problem to be solved, and if you're a problem-solver of that particular problem, that becomes your niche. That is your specialization for the simple reason for like, look, I can solve money problems of anybody who comes in because I'm a trained, educated financial planner who can think on my feet and figure things out.
But the simple business reality is you will be more efficient if you're really good at solving one problem repeatedly than if you solve whatever random problem someone comes in with because you just like to solve random problems. If that's what you like to do, kudos to you, that can be your thing. But just kind of by definition of what makes a business efficient and scalable...I hear some of the advisors say, "I'm having trouble scaling my firm." I'm like, "Well, tell me about what you do and who you serve." Like, "Well, my clients are all different." I'm like, "Well that's your problem." How do I create a repeatable process for 100 people who all have different problems?
The answer is there is no repeatable process because you picked 100 clients with different problems. If you pick 100 clients who have 1 problem, and you get awesome at solving that problem, look at how efficient your business becomes because now you actually can create a repeatable process to solve a repeatable need because you're helping people with that need. But when I think about it from that end where a niche is a need, a niche is a problem to be solved, well, yeah, I kind of think every client does fall into a niche.
The only people who are left are people who don't have problems. And if they don't have problems, they're probably not going to hire you. Or if they do, they're probably not going to be willing to pay very much because it's kind of by definition not a significant problem because if it was, it would be a problem that could potentially define a niche.
How Needs Manifest As Niches [10:39]
Michael: I do think it's worth reflecting though, Carl, relative to what you said earlier, if you look at a lot of our profession, we often define niches as serving other professions: doctors, dentists, lawyers, etc.
Carl: Just occupationally.
Michael: And to me, first of all, just overall occupation is just 1 definition of a niche. When we even look at the marketing studies that we do on the research end, we ask advisors who have niches what their niches are and how they define them. The majority of advisors do not define their niche by a profession, that's actually a minority of advisors. It happens to be a visible one. But some do it by stage of life, retirees, some do it by specialized problems, divorcees, recent widows, some just do it by psychosocial and other dynamics. Right? Christian financial advisors tie it to values and faith. I know an advisor whose niche is progressive Democrats. His political affiliation is his anchor.
So you can do it lots of different ways. We often choose a profession-based niche like the lawyers and the doctors and the architects and such because, just practically speaking, it's hard to pursue a niche if you can't figure out where to find them and where they gather. And professions happen to do this in very convenient ways. They have publications, they have podcasts, they have conferences, they have membership groups. They're particularly neat in a box, like niche in a box, which makes it a little bit easier to pursue them.
But not all niches are defined by profession, which means it's any state, it's any problem that's high enough stakes that someone would pay for help, would pay for answers, would pay for solutions, pay for advice, would pay for guidance, would pay for something. And so, yeah, if a client can't fit a niche, their problem literally fits no possible niche on the planet, what problem is it? What problem do they have that they would be willing to pay for any help at all? I don't know how to draw a Venn diagram of I'm willing to pay a financial advisor, but it's not a problem. Those Venn diagrams don't overlap.
Carl: Those are called 2 circles that don't overlap.
Michael: 2 circles. Oh boy, I'm now speaking to the master of drawing circles that do and don't overlap. I didn't even plan that.
Carl: Well, you got to be careful.
Michael: You usually have a picture of overlapping Venn diagrams of one of your drawings over your shoulder here for anybody who's listening and can't see.
Carl: Well, you got to be careful because I get emails... we're going to get emails about this. We're going to get emails. I didn't know these people existed, but there's apparently the Venn diagram police and they send very long, 10-page emails on why what you just described is not a Venn diagram. So, send them to kitces@...
Michael: Okay, you can send it to me. If I'm misusing Venn diagram, all seriousness, educate me. Now you've just made me curious. I'm going to look this up on the internet after our conversation. So, get me educated.
Carl: It's good. But the point is I have a problem but I don't want to pay for it or I don't...Yeah, look, I love the idea...again, I always say the shortcut into a niche...and I love that idea, a niche is just a need. The shortcut into a need is an occupation because you know where they hang out, they have similar...If you do... we've heard private pilots or people who love to fly fish, but everybody loves to fly fish, that's not a financial problem. Typically, it's a shortcut into a common problem when somebody says, "I am an emergency room doctor that owns their own LLC and we contract with the hospital, so I have no plan on equipment." Shortcut, boom. And I know where you hang out.
But that doesn't mean progressive Democrats or people who are interested in climate or land conservation issues in the West, well, land conservation issues in the West, there's a bunch of planning things that go along with that. That's interesting. Right? So if you don't have any of those things, I don't know what you are. I don't know. So that would be the interesting thing is what's an example...could we think of any example where you're basically a niche of one? Is that right?
Michael: Yeah, I do think there's such thing as a challenge of someone who has a problem that is so uniquely ridiculously specialized that in practice no advisor could formulate a niche around that particular problem because you couldn't run a viable business on it. I can be a problem solver of that, but after I get 'the' client who has that problem, I can't run a business on it because the thing is such a unique specialized need that it's not a viable thing to choose as a niche. And therefore, if no one picks that thing because it's so hyperspecialized, then the client won't be...to me, the client would still have a niche, but there might be no advisor that ever serves that niche because of that problem.
But frankly, even as I say that out loud, then there's still a niche. You know what that niche is going to end out being? Some dude or dudette out there is going to make a business that is: I solve ultra-complex problems that no one else knows how to solve. And that's who they go to. You look at almost any profession, there's a subset of people in law and medicine and accounting that you buy their frickin' genius brain, you pay them $1000 an hour and they figure out things that no one else has ever done or figured out before. Because some people are just so brilliant at that, that that actually becomes...their niche is, I solve problems that no one else can solve, in which case even that client still has someone they can go to that does that. But if you're that advisor, you only help people who have ultra-complex problems that already got rejected by 9 other advisors who can't solve their problem and you're charging an ultra-high premium to be able to solve the problems that no one else solves. So that's still a niche. Ironically, that's probably the best-paying niche of them all, but it's still a niche.
Carl: Yeah. And your greatest source of referrals are advisors who don't want to solve that problem.
Michael: Who are like, "I have no idea how to solve this thing."
Carl: "I don't know, talk to Sally because she's the only one I know that could even start it." Yeah.
How Financial Advisors Can Build Practices That Service Underserved Populations [17:14]
Michael: I do think it's reflecting...there is sort of, to me, just a meta question around this that I don't want to dismiss along the way, which is just, if everyone picks niches, does some segment of the population end up not getting served? Are there enough of us to cover down all the niches that there might be? And to be fair, I think the answer to that is "no".
Carl: I agree.
Michael: But that's a problem no matter how you slice it, right? If I look overall, there's 300,000 financial advisors, give or take a little, that's Cerulli's number. I think they measure it about as well as anybody does. So if all 300,000 advisors can do meaningful financial planning for 100 clients...and I still think that arguably is a little bit high for deep planning relationships, but makes the math round and easy at least...300,000 advisors, 100 clients per advisor, 30 million households get served. There are 130 million households in the U.S. So if every person who puts financial advisor on their business card does deep, meaningful financial planning for the maximum load of clients they could do, we're almost getting to a quarter of the households in the U.S., but not quite. That's how few of us there actually are relative to the population.
And to be fair, a lot of those 300,000 are not really the most engaged in financial planning. If I want to use something like CFP professionals as a proxy, we're not even at 100,000 yet, we will be probably next year as we keep growing. So if 100,000 CFP professionals are doing financial planning and they serve 100 clients, we're serving 10 million households out of 130 million in the U.S. And in practice, I don't even think all 100,000 CFP professionals are really fully engaged in financial planning. So in practice, look, we already can't even serve 10% of the population, and frankly, the 10% that do want an advisor and need an advisor and are seeking out an advisor, they're going to find someone because if anybody actually raises their hand and says they want an advisor, everybody pounces on them right now. Just try putting your name into a lead generation service because you're looking for an advisor and watch how many responses you get.
Any consumer who raise their hand for a financial advisor gets a quick pounce because we're looking for clients. But what that actually says to me in practice is, first of all, we don't serve everybody now, we're not even vaguely, remotely close to serving everybody right now. There's only a small portion of the population that's actually even raising their hand and saying they want an advisor because if everybody's raising their hand, our problem would be, I have too many clients, not, I'm struggling with organic growth. In practice, we're still trying to justify the value to get clients to come on board for which at the end of the day, why does a consumer end up hiring us? Because something hurts enough that they're willing to write our fees to get the problem solved. Which to me just comes back to, yeah, there's not enough advisors to serve everyone, but there probably are enough advisors to serve the number of people who are raising their hand and saying they have significant problems that they're willing to pay an advisor, that's why we don't have an avalanche of clients.
And so if that's how many people have needs, we are covering them. The only question is if I take 100 advisors who are each going to serve 100 clients, we can all be 100 generalists and each struggle with a mediocre, not terribly efficient practice because each of us are doing 100 different things for 100 different people, or we can organize ourselves to say, we're a network of 100 advisors who have 100 different specializations and cross-refer to everyone, and all 100 of us will be more efficient and have 99 partners who drive our growth, and we just serve people better. Why would we not want to orient that way? Everybody wins in that. Truly, I don't know who loses in that scenario.Carl: Yeah. No, I think it all comes back to what we started with, which is a super interesting thought exercise, and we've got so many more things to think about. I think what this is pointing to, which is a really good question, which is are we leaving people unserved?
Michael: Yeah.
Carl: And the answer is yes. And we've been talking about this for 20 years. How do we serve people who need help but aren't able to get it in a sustainable, profitable way?
Michael: Which usually comes down to how do we serve people who need help and can't or won't pay our fees?
Carl: That's exactly right, in a profitable way.
Michael: The way we charge. My heart still bleeds for that problem and I'm concerned about that problem. To niche or not niche does not solve that problem. If you want to solve that problem, make the most badass, hyperspecialized, high-income niche that serves the absolute ideal clients who will pay you maximally what you're worth, work a half client load, make 100% of your money on 50% of the clients because you're super awesome, super specialized, solving a high-value need, and then take another 50% of your time and give it away pro bono if you want. And serve a whole bunch of people who you can't help. Right?
Even in that world, if I want to maximally serve people who can't afford my services, I would still do it by saying, I'm going to find the fewest people I can find who will pay 100% of my income needs. And then I don't have to make any money on anybody else and I can give away the rest of my services for free. I call that the barbell approach. All my clients are either going to pay my top dollar or nothing to maximize my reach. Anyone in the middle just makes that process less efficient. So even if I want to leverage myself, I would still find the most focused, high-value specialization I could, and generate all my income from the smallest number of clients I could, and then that gives me room to be free or pro bono or whatever you want to do for as many other people as you want because by definition you don't need to get any money from them because you've made it all at the other end.
Carl: That's the old effective altruism argument, right? Go make as much money as I possibly can and live on as little so I can give a bunch away. It's a very similar argument to me.
Michael: Yes, except, at least my understanding of that world, that tends to be like, spend 30 years making it all, and then spend 30 years giving it back to the world in a positive way. And you don't have to do them sequentially. To me, the opportunity is that you can do them in parallel.
Carl: No, that's actually the new effective altruism movement for the last 20 years has been really this idea of go get the highest paying job you can and live on...in fact, the guys that founded it live on the median income in the UK and they're both Oxford professors. They live on 35,000 pounds a year or something and then give the rest away while you're alive. Right? And then be super effective with it, think really carefully about...they always land on things like malaria nets or whatever that are proven, your impact per dollar is super impactful. And I think that's the same argument you're making here. But to the question's point, it's like, yeah, we still have a lot of work to do to figure out how to help the people that need help and we're thinking about it, but it's not a niche problem.
Michael: We have a lot to do there, but it's not a "niche or not niche" problem. It's a how do you serve people that can't afford what we do, the way we do it, and the way we charge?
Carl: Yeah, for sure.
Michael: Which is also a big, big problem. But, A) it's different than the niche problem, and B) to me, the efficient solutions to solve it still start with… get good at solving a problem you get paid well for because it gives you more resources to solve the other problem of the underserved.
Carl: We should have started this with a version of the drinking game, but we should have just called it a marshmallow game. Every time the word niche is used, you have to eat one giant puff marshmallow.
Michael: I think whether you do that with marshmallows or alcohol, that would be extremely unhealthy.
Carl: Either way.
Michael: For this particular episode, very, very unhealthy.
Carl: Yeah, for sure. Well, that was super fun. Thanks, Michael.
Michael: Awesome. Thank you, Carl.
Carl: Cheers.
Leave a Reply