Finding Your Financial Planner Niche – Is Getting A CDFA To Serve Divorcees A Good Choice?

(Michael’s Note: The video below was recorded using Periscope, and announced via Twitter. If you want to participate in the next #OfficeHours live, please download the Periscope app on your mobile device, and follow @MichaelKitces on Twitter so you get the announcement when the broadcast is starting, at/around 1PM EST every Tuesday! You can also submit your question in advance through our Contact page!)

#OfficeHours with @MichaelKitces Video Transcript

Well good afternoon, everyone. Michael Kitces is here, talking Office Hours today. And I thought for our topic today we would dive into this discussion of finding a niche, choosing a niche, how do you pick a niche to go with. So as are many of these Office Hours, I try to do these responses to questions that come in and so I thought I'd field one today that actually has been a very common one that I'm getting a lot these days.

Is Divorce A Good Financial Planning Niche?

So this comes from Jesse, and Jesse said, "I saw you recently speak on your future financial applying and industry trends about how important it'll be to find a niche for your career in the future. I've been in the industry five years and was thinking about pursuing the CDFA designation, the Certified Divorce Financial Analyst designation, and making divorce planning my niche. So hoping to get your thoughts on this niche."

Jesse continues "I'm concerned about how many people are already in the niche. Is it saturated? Do attorneys really do all this work in-house so they don't really even need a financial planner? And do I have even to worry that the institution of marriage is changing to the point that divorce may not be as commonplace in the future as it is today?" Certainly the future trends of your niche matters! "So one thing I like about divorce planning as a niche is that it has this credible designation attached to it, so that helps me stand out as an expert when I present myself, but it means there are more people already in this niche. So what are your thoughts?"

That was Jesse's question. So, a few thoughts on going down this road on pursuing a niche. So first and foremost, I really view this as something that I think is going to be essential for the future of financial advisors, and a lot of you have heard me beat this drum already. We talk about it on XYPN radio, our podcast for XY Applying Network and I talk about it a lot at conferences as well, and I'm afraid you're not going to hear me stop beating the drum on this. It's that important. And I think we're starting to collectively recognize this as an industry.

You all tell me, how many of you feel like growth is a little bit harder now than it used to be a couple years ago? Tap the screen, give me a couple of Periscope hearts here if you agree, or you can type your comments in. Are you finding more and more often now, when you go out there and you talk about what you do as a financial advisor, these prospective clients you might be working with are comparing you to other financial advisors. "Well this other person up the street does this, I saw online you can do that, I'm finding all these other financial planning resources, why should I work with you and not all the other financial planners that are out there?"

We see that question coming up more and more, even for our advisory firm practice. When I look back 10 or 15 years ago as a wealth management firm, our typical approach process... the prospect would be meeting with us, abd some local broker from a wirehouse. And no offense wirehouses, but he was there to sell the wirehouse products [back then]. There wasn't a lot of financial planning going on at the time. And then maybe, an insurance agent who was actually their brother-in-law. And so it would be like us, an old fashioned stock broker, and an insurance agent selling product to his family members. And basically, we would win every prospect as long as it wasn't going to be awkward at Thanksgiving or Christmas to not have bought the insurance policy from your brother-in-law. That was the dynamic.

Advisor Crisis of Differentiation

Now when we typically approach folks today, it's us and several other high quality financial planning wealth management firms in the area. We're in a pretty dense area here in DC, so there are a lot of them. And I routinely find when we go out and compete for business now, we're competing against other good financial planners. Usually these are people I know through NAPFA or FPA and I don't have anything negative to say about them. I'd say, "Hey, we're a little different in this regard, and they do things a little bit different over there," but we're highlighting nuances and that's the phenomenon. I've dubbed it the crisis of differentiation, which is when we go back 10 or 15 years ago, the truth is being a true financial planner actually was a niche. There were 300,000 people who called themselves financial planners, but fewer than 1 in 10 that had CFP certification or were really doing financial planning.

So just being a financial planner, a wealth manager, was a niche. That's really not true anymore. It's not a niche anymore. It's kind of mainstream, and it's driving us all to go to the next level of saying, "I've got to drill down deeper to another niche to find some way to differentiate beyond just saying I do comprehensive financial planning with credentials and experience, and customize individualized solutions for my clients." That statement that I'm going to bet almost all of you say, right? You deliver personalized, customized financial planning advice for the needs of your clients based on your experience, your credentials, and your expertise. And the problem is all of you on this Periscope say the same thing. We historically have as well, as a firm. Not differentiated anymore, because we're all saying the same thing.

Is a CDFA Designation Worth It?

So the dynamic is going forth into real niches, deeper niches. And so getting to Jesse's original question, is CDFA a good program? So I think it is. For those who aren't familiar, it's the Certified Divorce Financial Analyst program. It's from a group called the Institute of Divorced Financial Analysts, they run and oversee that designation. Certainly what I would view as a credible, legitimate designation in a space where there's a lot of questionable designations out there. I think CDFA is legit. I've included it on my list of what I call post-CFP designations that people should check out and consider if they're trying to extend their education further and move towards a niche. And there's no question, being able to go out and get something like CDFA is a nice expedited process to gaining expertise in a particular niche and having a program that just serves it up for you with all the educational curriculum in a nice designation at the end, so you don't have to figure it out yourself.

Now is this a good niche? I have to admit; I think it is. You look at the statistics on divorce. There's a lot of divorce going on out there and I'm just not sure how dense the CDFA world really is. There are many of them, it is a growing organization. I don't mean to say they're not succeeding, but I even scanned around because they've got a "Find a CDFA" option on their website. I searched around the DC area, the DC Metro area has 8 million people and I found about two dozen CDFAs. And I'm going to bet two dozen people are not fully saturating the divorce rate for 8 million people in the DC area. And we're a dense area with a lot of CDFAs.

So realistically, I think there's a lot of space. And it's worth understanding, Jesse, you may find this as you delve further into the CDFA program, this really isn't competition for attorneys. Now I don't live the full time divorce world, so I'm sure there are divorce experts out there who can speak to this in even more depth, but the dynamics for a lot of divorce, particularly collaborative divorce and the whole growth of the collaborative divorce space, is one spouse has an attorney, the other spouse has an attorney, they're the attorneys that will either duke it out or hopefully meet up, come to an agreement, but they need a neutral third-party that can assess both sides and give objective views on the actual financial matters without having each attorney lobby for their respective side. That's the role that CDFAs often play. So it's truly complementary to attorneys. It's not, "Hey, are you going to get knocked out of this because attorneys are out there?" It's actually, "Hey, if you can build great relationships with the divorce attorneys, that will be the constant stream of referrals for you to have a never ending series of business without needing to rely on all the other marketing channels that everybody else on this Periscope relies upon," because we're all generalists, and now you're a specialist getting referrals from a different place.

Do I Need A Financial Advisor Niche Now?

So I really do think it's a huge opportunity. Now when look out in the long run, if I project this out 10 or 15 years, I actually do think we're going to get to a point where it's harder to have a unique differentiated niche. So I think the trend you're actually going to see is niches become more popular - and one recent industry survey found that more than 50% of advisory firms now are at least exploring or looking into niches. The crisis of differentiation is on. Niches are the natural path. It's where all of us are going to go. Same thing as every other profession, right? Attorneys have specialties, accountants have specialties, doctors have specialties, and now financial planners are going to have specialties.

So if I project that forward, I think what you're actually going to see 10 or 15 years from now is mega firms in particular niches. So we look at the landscape today, there are a lot of huge AUM firms and wealth management firms that built their base because 15 years ago, they were early, they were the niche while everybody else was still selling product and maybe occasionally doing planning. And the firms that went into depth there built huge businesses by owning that niche.

So now that that niche is getting saturated, we have to go down the next level. I think what you're going to see in the coming decade is an explosion of firms going into niches, some of which will succeed in the same way that today your challenge might be, "I'm trying to grow a firm in my area, but there's one or two or three big firms in town that are already known across everyone," and it's really hard to get your foot in the door as a new firm. Ten years from now, you might see the same thing in niches. "I want to go in and do CDFA, but there are 3 firms out there that already have $10 billion under management and 150 advisors each that just own the divorce space, and it's so hard for me to get my foot in the door." I think that's the kind of transition you're going to see.

So the good news is, if you're looking at a potential niche today, this is your opportunity...You are there early. Fifteen years from now when you look back and say, "I wish I had the one big business idea to have been successful in my career," if you're in your 20s, 30s, or even 40s and you've got that time horizon, this is your opportunity just as in the late 90s and early 2000s, the AUM firms had a 15 year run because that was the niche before it went mainstream. Now that's mainstream, and new niches are going to be the new big business idea for growing large firms in the coming decade. That's the trend. I'm seeing it already taking shape. And it's going to take off from here.

Now what that ultimately means is for first stage niches where I think we are right now, going out into established programs, following their curriculums so you can get up to speed on the niche quickly and then dive in, is a great way to go about doing it. So you can dive into the retirement niche with American College's RICP program, or RIIA's RMA designation. You can go down this road with divorce, getting the CDFA from the Institute of Divorce Financial Analysts.

[Question: What do you think of the Philantrophy niche?]

I'm seeing a question about the philanthropy niche. Sure, I think that's a great space. If you really have experience working with very high net worth folks, people that have tens of millions of dollars, there's a lot of anxiety in trying to figure out, "Hey, if I'm going to give away a million bucks, how do I really make sure that charity I'm going to give the money to, uses the money responsibly to ensure that it achieves the kinds of outcomes and vision I have for the world," right?

We're seeing all sorts of changes in philanthropy right now. The recent big news was Zuckerberg's launch of his new philanthropic vehicle where he basically said, "I'm actually not entirely giving the money away, I'm using my own vehicle where it's going to be a kind of business." Where ultimately the money goes out of my family's net worth, but he wants to build it as a business. One of the big reasons he's doing that is because he wants more control over how his philanthropic endeavors get implemented. So I absolutely think philanthropy is a good opportunity. American College has a nice designation on this called the CAP, I think it's Chartered Advisor in Philanthropy.

Creating Your Own Financial Advisor Niche

So there are a lot of structured programs for niches, which I think are great starts. If I was looking at niche right now, I think that's a very reasonable path to go. Now the caveat, eventually I think even that's going to be a hard path to go. At some point down the road when I look up CDFAs, there are going to 150 in the DC area within 10 miles of where I am, and this is going to start feeling saturated. I think that's years out, I think if you're doing it now, you're on the early stage, you're okay. But a couple years down the road, that's going to get harder. And the transition you're going to see...So the second stage of niches that's coming is people saying, "Forget this going out to get an established program, because that's too crowded, because everybody else is taking the same established program, I'm going to make my own niche. I'm going to make my own focused area. I'm going to specialize in one group of clientele."

Because the truth is for most of us, we could have incredibly focused niches and be wonderfully successful. The truth for most of us, we can have this great practice that fulfills all of our financial needs, and often even grows to thriving business, off of maybe 75 to 125 high quality clients that are right there in the center of our niche, 75 to 125 A-level clients. And the truth is, I actually know many firms that build great businesses with nothing more than two or three dozen of their top A-level clients.

So with that kind of specificity, you can go incredibly deep and focused in finding a niche. If you just want to specialize in real estate developers in your town, in your big city area, where a lot of big money moves around, they have unique needs. It's different than traditional financial services, because they keep investing in real estate, not in portfolios, so AUM advisors don't touch them. But if there's two or three dozens of those in your greater metropolitan area and you can just specialize in those folks, you can build your whole business off of just that select few that no other advisor wants to serve.

And of course, how are you going to learn that niche? You have to get out there and actually talk to the people and see what they need. So I actually have a couple articles up on the site, we'll make sure we have links in the notes about it, of how to really find and craft an expertise in your own niche that you're building from scratch. And it starts with just finding about a dozen of these people, take them out to lunch, and ask them a whole bunch of questions. What are their challenges? What are their financial issues? What do they actually need to be successful? What do they feel is missing that they wished someone knew more about that could come to the table for them?

And what you're going to find for a lot of those folks is the questions they ask and issues they have is not our traditional slew of portfolio management and insurance products and annuities and all the rest of that. And that's actually the point. That's how you formulate a specialized niche. If I ask what does a real estate developer need for financial advice, I'm going to guarantee you it's very, very different than what a baby boomer retiree needs, which is what most of us in the industry are focusing on these days. And that differentiation is good. That means you can craft a service specific to those folks. And where are you going to get the expertise? You're going to do the legwork to learn it.

Think what would that client do, because they need the answer to their financial question? They're going to go online, they're going to read, they're going to research, they're going to go to classes, they're going to learn it and figure it out. So what's your opportunity in the niche for that person? Do the same thing for them, have the answers to their questions. The truth is you don't necessarily have to know everything that there is to be known. You need to know more than the people that you're serving so that you can create value by having them pay you so that they don't have to do it themselves. And of course, the more people you serve in that space, the deeper your expertise is going to become, and the more effective that you can serve them.

So just recognize this dynamic. You can craft your own niche. You don't have to go even with programs that are out of there, but I think for what's out there today, there are some good programs and it's a great place to start, because I don't think virtually any niche is over saturated today. Almost all of us are at least still generalists, maybe we're talking about moving towards niches, but we're really not there yet.

So I hope that's helpful. Thanks again everyone for joining in on Office Hours. Hope that we will see you next week as well, 1 P.M. east coast time on Tuesdays. Have a great week. Take care.

So what do you think? Are you pursuing a new niche in 2016? How are you selecting what to pursue? Have you already established a niche for yourself? How did you pick the one you chose, and gain the expertise necessary to serve your clients well?