Executive Summary
With the growth of financial planning and the CFP certification over the past decade, just doing comprehensive financial planning is not the differentiator it once was. As technology commoditized first investment transactions, and now increasingly the basic elements of diversified portfolio construction, advisors are forced in the direction of providing more holistic financial advice to add value to the relationship. While this is ultimately a plus for consumers, it also mean that providing financial planning services to consumers is a much more crowded, competitive space than it was just a few years ago.
In response to a more challenging environment, many advisors have doubled down on their efforts to be generalists, seeking to cast a wider and wider marketing net in the hopes of attracting more prospects to become clients. Yet unfortunately, it's not clear whether such efforts really result in more clients, or simply more marketing work for the same - or even inferior - results. After all, it only takes a few advisors becoming specialists to attract away key potential new clients, to the point where while each specialist may only be able to grow within his/her niche, the generalists can't grow at all. And the end result is that the advisor sees even more prospective clients, but gets fewer actual clients.
Accordingly, the real key to turning around the trap of the wider marketing net is to recognize that for a business that is already undifferentiated and struggling to grow, casting an ever-wider net will not result in more clients and business. Instead, the key to differentiation is to turn around 180 degrees, and become more focused and specialized, to truly become the best-in-class for a particular type of clientele that can be served effectively and profitably. While that might result in fewer prospects, real differentiation ultimately results in more actual clients, allowing advisors to grow their businesses smarter, instead of just working harder.
The Plight Of Financial Advisor Marketing In A Typical Advisory Firm
There was a point in time, not so many years ago, where simply being a comprehensive financial planner was a differentiator. In 2004, there were an estimated 340,000 people calling themselves a “financial advisor” according to Cerulli, but a mere 45,000 – or roughly 13% of the total – were actually CFP certificants. In other words, to have the credentials to actually establish yourself as a financial planner, and to provide comprehensive financial planning services, was a differentiator.
Fast forward 10 years to today, though, and the landscape has shifted. The number of advisors has dipped down close to 300,000, and the number of CFP certificants is pushing 70,000, which means the percentage of advisors who are CFP certificants has nearly doubled over just a decade from barely 13% to almost 23%. And arguably, the number of people who hold themselves out as comprehensive financial advisors and wealth managers is even greater, given the growth of the CPA/PFS designation, the emergence of new programs like the CPWA, and the ongoing proliferation of other certification and designation programs (of varying degrees of quality).
Coupled with these trends is the challenging reality that many of the services for which financial advisors were once handsomely compensated are now being brutally commoditized by technology. It was “only” 20 years ago that most consumers had to actually wait for the newspaper to find out the price of a stock from the prior day, and call a stockbroker just to get a trade executed. Constructing a well-diversified portfolio was an even more complex affair. Yet by 10 years ago, the rise of online brokerage services and the expansion of the internet had driven the cost of executing stock trades down by ~90%, pushing advisors in the direction of constructing diversified portfolios instead. Yet now that service, too, is becoming commoditized, from the rise of sophisticated portfolio analysis and trading tools available directly to investors, to retail branches of online brokerage firms offering portfolio construction advice, to a new breed of online “robo-advisors”like Betterment and Wealthfront that can craft, implement, and monitor a high-quality passive strategic portfolio for a mere 0.25% or less.
While this doesn't mean the robo-advisors will eliminate the human advisors or that giving financial advice is being totally commoditized (in fact, financial planning is the anti-commoditizer right now!), it does mean that financial planners are facing a crisis of differentiation unlike anything seen before.
The Trap Of Financial Advisors Casting A Wider Marketing Net
For advisors struggling with slow client growth, there is a natural temptation to try to overcome the challenge by casting a wider net for new clients. The rationale is fairly straightforward – if my current marketing approach isn’t netting many/any clients, it must be because the net is not being cast widely enough. Open up the available services to a wider range of prospective clients, the logic goes, and there will be more potential people to work with. Accordingly, advisors back away from their asset minimums, get more flexible on their fees, and increasingly offer to work with and be an expert for "anyone" who's willing to pay.
Yet the reality is that paradoxically, casting a wider net for potential clients can actually reduce the effectiveness of the firm’s marketing. By doing more of everything-for-everyone, the firm becomes less differentiated, less unique, and therefore less appealing to anyone in particular. The end result: by casting the net wider, the number of potential clients may be greater, but the number of prospects who actually become clients is often fewer.
In other words, the process of widening the net may result in more prospects but no more actual clients (in fact, it may even be fewer clients)! For instance, instead of closing 30% of the next 15 clients, firms cast a wider net and close 10% of the next 30 clients, bringing in fewer clients (3 instead of 5) despite working twice as hard in prospecting (30 prospect meetings instead of 15). Sadly, the conclusion of many advisors at this point: well, if there were only 3 new prospects, that must mean it’s time to cast the net even wider, and try to get 40 or 50 prospective meetings. Never mind that as the paradox of the wider net plays out, 50 prospect meetings may drop their closing ratio to 5%, reducing their new client flow to only 2, despite the fact they’ve now tripled(!) their prospect meetings.
The end result - casting a wider net causes the firm to work harder and harder meeting more and more prospective clients, yet not necessarily bring on any more actual new clients.
Understanding Why The Trap Is A Trap
So what’s the path out of the wider net trap? To understand the way out, it’s first necessary to better understand why the wider-net marketing approach is so ineffective at converting prospects into clients in the first place.
The fundamental issue with the wider net problem is that by doing everything for everyone, the advisor is not uniquely differentiated as being the best at anything for anyone. For instance, imagine a world with 5 advisors: the first specializes in doctors, the second specializes in entrepreneurs, the third specializes in teachers, and the fourth and fifth are generalists who will do anything for anyone.
Now imagine what happens when a doctor who needs a financial advisor begins the process of searching for one. The doctor will likely interview three of the advisors – the one that specializes in doctors, and the two generalists, as clearly it doesn’t make sense for the doctor to see advisors who specialize in teachers or entrepreneurs. At the end of the process of interviewing advisors, which of the advisors will have the most credibility for being able to solve the doctor’s problems? Which is most likely to have worked with other doctors the prospect knows and trusts for referrals/references? And who’s most likely to win the doctor’s business – the advisor who specializes in the precise needs of that doctor, or the two generalists who do anything/everything for anyone/everyone? The answer seems pretty clear: the advisor who specializes in doctors is going to win over the overwhelming majority of doctors, compared to the other two.
Now imagine that an entrepreneur begins the search for a financial advisor. The entrepreneur will likely interview three of the advisors – the one that specializes in entrepreneurs, and the two generalists, as clearly it doesn’t make sense for the entrepreneur to see advisors who specialize in teachers or doctors. At the end of the process of interviewing advisors, which of the advisors will have the most credibility for being able to solve the entrepreneur’s problems? Which is most likely to have worked with other entrepreneurs the prospect knows and trusts for referrals/references? And who’s most likely to win the entrepreneur’s business – the advisor who specializes in the precise needs of that entrepreneur, or the two generalists who do anything/everything for anyone/everyone? The answer seems pretty clear: the advisor who specializes in entrepreneurs is going to win over the overwhelming majority of entrepreneurs, compared to the other two.
Now imagine that a teacher begins the search for a financial advisor. The teacher will likely interview three of the advisors – the one that specializes in teachers, and the two generalists, as clearly it doesn’t make sense for the teacher to see advisors who specialize in entrepreneurs or doctors. And once again, the likely outcome of this process is clear; the advisor who specializes in teachers is overwhelmingly likely to win the prospective client’s business.
The end result of this process: by casting the net wider and wider, the generalist advisors have more and more prospect meetings, but it simply leads them to lose out on more and more business to other advisors that are perceived to be more specialized, trustworthy, competent, expert, and capable of solving each particular client’s problems. Note that in the end, each of the specialists had 1 meeting and got 1 client, while the generalists each had 3 meetings and no clients. The generalists worked drastically harder doing more prospecting for clients, with drastically inferior results.
Sure, in the real world the generalist advisors can and do still win a client here and there – not every potential client has a specialist who serves them in the first place – but it’s clearly an uphill battle. And as more advisors become specialists over time, the pool of prospective clients who don’t have a specialist serving them shrinks smaller and smaller. If the advisor responds by trying to cast the net wider and wider, the paradoxical end result will just be an increase in prospective client meetings but not an increase in new clients, as the generalist advisor loses out to competition that is more targeted, more specialized, and more likely to be perceived by the prospective client as the ideal solution.
Crafting A Financial Advisor Niche
So how does the advisor escape from the paradoxical trap of the wider net? Simply put, by turning around 180 degrees and moving in the opposite direction, with a goal to become more specific, more specialized, and more focused. The goal is to spend less time in meetings with prospective clients, but become so focused that the advisor wins the overwhelming majority of the prospects that are seen, because now the advisor is the specialist with the best solution that attracts clients away from the generalists.
In other words, this is why the movement towards specialization and having a “niche” matters so much. In a world where just being a financial planner was a differentiator – as was the case for the past several decades – the mere fact that the advisor could credibly claim to offer the service was sufficient. But in today’s marketplace, where the number of financial planners is drastically higher, differentiation is being pushed to the next stage: for consumers, it’s no longer just about getting a financial planner, but a financial planner who’s specialized enough to solve my personal needs and problems. The age of the generalist is coming to an end; the age of the specialist has begun.
It's worth noting that yes, you can still “specialize” in being a generalist. The model exists in other professions, like doctors who are general practitioners. But remember in the medical world, the generalists typically earn less than the specialists, and have been under pressure for years. And they succeed in part because they specialize in being a generalist; someone who can provide an initial review of the situation, and refer the patient out to the necessary specialists, which in turn means the business model for generalists would likely resemble a simple, low-cost fee-for-service model that virtually always ends in a referral to another (higher priced and more specialized) advisor, which may not be an appealing business model future for today's generalists!
And bear in mind as well, even that generalist position for doctors only works in part because the medical system is increasingly subsidizing the cost of seeing a general practitioner for a regular checkup (i.e., low co-pays or no payment required at all for an annual check-up), because the insurers have found preventive care is less expensive for them in the long run. In other words, one might say that the primary reason general practitioners in medicine as still as successful as they are is because insurers are trying to get patients to use them for a lower price rather than see a specialist at a higher price. Which doesn’t exactly paint the most bullish picture for the career of the general (financial advisor) practitioner, especially when there is no insurance coverage to steer consumers in their direction as a first step.
Getting From Here To There
For the advisor who’s starting a practice from scratch, the natural implication of this evolution is to recognize that, from the outset, starting to craft a niche is probably a very good idea going forward. No, that doesn’t mean the new practitioner has to turn down every prospective client who doesn’t fit the niche as they try to build their business; when starting out, any new client and business revenue is often crucial. But the point is that, done well, there frankly shouldn’t be very many non-niche prospects and referrals in the first place, and the new practitioner should recognize that spending time with prospective clients outside the niche is likely to have a much lower success rate. While it’s good to get any clients possible when starting out, be careful not to waste too much time meeting with prospective clients whose business you’re not realistically going to win in the first place… especially when that time could be better spent building relationships in your niche instead!
For established advisors who already have some client base, but would like to grow it further and are struggling to do so, the options are more plentiful. Advisors in this position have a choice: to choose to point the practice in a new direction towards a new target niche, or to look at the existing client base where there may already be a partial niche, and steer the business further down that path. If you already have a number of entrepreneur clients – and like working with them! – you can expand in that direction. Or if you have a lot of doctors, or teachers, or executives, or workers from a large local company where you know their retirement plan and employee benefits cold, etc. The business doesn’t have to be reinvented from scratch (unless you wish to do so); it can simply be tweaked and adjusted in a direction where there’s already been some success, to build more. Again, as with the new advisor, this doesn’t mean the established advisor will automatically turn away any other referrals and business opportunities that come along. But again, if the practice is doing a good job focusing on the niche, most/all of the prospective clients who get referred should be in the niche anyway, and with a much higher close ratio than the non-niche referrals.
The bottom line, though, is simply this – as financial planning continues to grow, just being a financial planner is no longer the differentiator it once was. Instead, advisors who want to grow and succeed from here must differentiate themselves further, by demonstrating to a certain target clientele why that advisor is truly more focused, more specialized, and more capable than the competition. And the only way to do that is to craft a niche accordingly. To go the opposite direction, and cast the net wider to deal with struggling growth, will only lead to the paradoxical result of an increase in prospects and activity, but not an increase in new clients. Which means viewed another way, focusing in on a niche provides an opportunity to work smarter, instead of just working harder.
Right on point, Michael!
I will add that being a generalist, in addition to getting you less business, also makes that business more difficult to run efficiently. When you do everything for everyone, you have to know more than you can reasonably keep current on and you have to have services that are broad enough that you cannot do it efficiently. So you attract fewer and you have a practice that’s harder to manage.
Mike and Steve, et al.,
That’s why the R&D efforts of our governing board of physician-directors, accountants, financial advisors, academics and health economists identified the need for integrated personal financial planning and medical practice management as an effective first step in the survival and wealth building life-cycle for physicians, nurses, healthcare executives, administrators and all medical professionals.
Now – more than ever – desperate doctors of all ages are turning to knowledge able financial advisors and medical management consultants for help. Symbiotically too, generalist advisors are finding that the mutual need for extreme niche synergy is obvious.
But, there was no established curriculum or educational program; no corpus of knowledge or codifying terms-of-art; no academic gravitas or fiduciary accountability; and certainly no identifying professional designation that demonstrated integrated subject matter expertise for the increasingly unique healthcare focused financial advisory niche … Until Now!
Enter the Certified Medical Planner™ charter professional designation
Ann Miller RN MHA
[Executive-Director]
http://www.CertifiedMedicalPlanner.org
So I obviously love this post, having opened a niche practice specializing in teachers (specifically in Illinois) in 2013. However, to show the other side of the coin, there is one thing which may not work in the specialists favor:
Growth can be slower at the start. Having a firm that is so specialized, even down to it’s name (Finance for Teachers) means that any visitor to my site who is not a teacher will look at other firms. Also, as I talk about Illinois issues almost exclusively on my blog, even teachers from another state may look elsewhere. This slows down initial growth versus a generalist. However, I have no doubt that once the firm gets more local exposure, the firm will grow faster.
Dave, when you say teachers, do you mean k-12 teachers? Or, are you also marketing to university professors?
Steve, my marketing solely focuses on K-12 teachers, as that is what my family and network consist of. I do work with professors on occasion, but don’t do any marketing to them.
Dave you have done something very special. And that’s build stronger connections. Have you noticed that those stronger connections kept clients with you — even in down markets?
Dave,
But again, this is the point. Yes, as a specialist the non-teachers are probably going to look at other firms, as your site will not be compelling to them. But if you were a generalist, would your site really be all that MORE compelling to them? Yes, you wouldn’t push them away as quickly as a prospect, but that doesn’t mean you were going to automatically get them as a client, either. You might just end out spending more time meeting prospects who ultimately decide to work with another firm that’s larger, more established, more specialized, etc.
And of course, if you didn’t have the specialized content, I’d wonder how many non-teachers you’d be attracting to the website anyway, as it’s also harder to differentiate the content in the first place without a specialization!
But the bottom line is that it’s not clear to me at all that you’ve “slowed your growth” by taking a specialized focus. You may have reduced the number of prospects you’re meeting with initially – maybe – but having more prospects does not automatically equate to having materially more prospects, does it?
The reality is that starting up any practice is slow and takes time to get established before a lot of clients are saying ‘yes’ to the advisor. The question is not which type of approach gets the more prospects to talk to necessary; the question is which type of approach gets the most actual clients. And in that context, it’s not clear at all that being a generalist is necessarily a faster start?
– Michael
Michael – This message is so important and I’m still surprised at how many advisors and planners aren’t “getting” the importance of developing some sort of identifiable niche. I work with them every day on building LinkedIn profiles that stand out and when I ask the question about who they work with/ who is their target market, 99% of the time I get either “anyone” or “high net worth”. We all know that “anyone” likely isn’t true as there is a minimum threshold that most have and that all advisors want to work with high net worth people whether they are or not.
When you try to be all things to all people, no one remembers you for anything. That’s because you’ve had to water your message down so much that it doesn’t mean anything. Most people know (of) a few financial advisors whether they are working with one of them or not. If they are working with one, then that is likely going to be the person they refer whenever a referral situation exists. However, if they know you and know your niche and that niche is a fit for the referral situation, then you’re more likely to get referred. People want to make referrals when they believe they are truly helping and when they believe the person they are referring can help. While it may limit the quantity of referrals you get, the quality should be outstanding. And, do you really want to be dealing with situations of quantities of unqualified prospects anyway?
A niche market doesn’t mean that you won’t or can’t work with people who don’t fit that niche. It is possible to market a niche without it appearing exclusive. How that message is developed is key to the success, so it is definitely worth the investment to hire a professional and not try to do it yourself.
One last thing is that we tend to think of niches in financial planning in terms of the clients’ career or business and that doesn’t have to be the case. Lifestyle and special interest niches can be just as beneficial. Of course, it does make it harder to pre-qualify prospects because their finances aren’t directly tied to the niche. But imagine if you were a dog lover and you became the financial advisor for dog lovers. Your clients were encouraged to bring their dog to the meetings and there were special accommodations and treats for them. You aligned yourself with the local shelter. Passionate people are the biggest advocates you’ll ever find. The fact that there is a local financial advisor who loves dogs as much as they do will be something they will have a hard time NOT talking about.
The goal of financial planning is to support a desired lifestyle, right? Niche yourself to the lifestyle which is what people want to talk about and not the money source (which they may not love to talk about).
Enjoyed your reply. I see that niches fall into 3Ps categories:
Passion
People
Product
Have you seen another?
I don’t get the medicine analogy. Medical specialists don’t generally specialize based on the occupation of the patient (teachers, Dr.’s, entrepreneurs, etc.) They specialize on the basis of the disease or condition being presented by the patient, whatever their occupation or hobbies. The better analogy is the financial planning generalist referring the client to specialists, such as tax, legal, estate, insurance, investment, etc. And then assisting the client in interpreting and coordinating the advice into a holistic package. How well a generalist does that is what should matter to the client.
The Niche is the future of Financial Advisory. Niche businesses drive business development for new and established advisors. It is true it may take a while to develop the specific skills and expertise necessary to serve your chosen niche but i can report as an advisor who has deliberately and passionately pursued the niche business it pays dividends beyond imagination both financially and personally. My specialization in divorce has far exceeded my expectations. It allows me to work with individuals and couples on an hourly basis during their divorce while developing deep and meaningful relationships during the largest financial transaction of their lives. The majority of them transition into my fee-based wealth management business after.
I have a very specific technical knowledge base, a very specific target client profile and a very specific group of centers of influence all customized to my niche.
We believe so strongly in the niche business that we created a turn-key franchise model backed by a national brand to help advisors learn the financial and practical intricacies of working in this niche and differentiate themselves from the generalists of the world. It is all about the value proposition. If you cant explain how you are different you cant stand out in the crowd in one of the most competitive businesses on earth.
Financial planning undergraduate programs are even starting to realize the value of specialization for their students. I am traveling to Texas Tech in January to teach a two day special topics course on the Divorce Niche to the undergraduate financial planning students. The invitation came after speaking specifically about my vision of the niche based future of the financial advisory world with a couple of the professors at the FPA experience in Orlando this year.
#1 thing about people you meet as strangers is that they want to know WII-FM (what’s in it for me). When you generalize there is nothing in it except financial planning or advising — i.e. what most other do. You’re just “one of many” — most likely in the room!
GPs — there is a shortage, across the country, of doctors who are general practitioners — because they are paid less and spend a lot more of their time keeping up with “everything” (have to keep up on more aliments, medications, etc.) GPs often will “refer you” to specialists when needed, but they often charge less because they are not specialists. In Colorado this year, they starting a program that pays full tuition for medical students who will be GPs for at least 5 years after they graduate.
The #1 reason I hear about people not niching is that they will lose out on clients and have to work more. A) They don’t have “all the” clients they want yet, isn’t it worth trying something, that works for many, for a at least while to see if it works? B) It’s not true.*
‘
What do they do instead of niching? Spaghetti Market! (market any way, and any time, spending an exorbitant amount of money and time in the process, hoping that “something” will stick.) And some stuff does stick, but there is no “rhyme or reason” so it’s difficult to monitor and find a pattern or any consistency that can be replicated for more success.
Some old things need to be brought into this century. When I researched for my first article on niching, I couldn’t find one place that took credit for the idea. However, one writer felt that the whole idea came from the financial industry. Back in the day, banks formed in a small town. As the town grew, banks formed specifically for business owners. Even during my childhood, there was a commercial bank in my Brooklyn neighborhood across the street from the bank I got my first Christmas account in. Today, you have community banks, BIG banks, etc. You’ll find both Business Relationship Managers as well as Relationship Managers at most bigger banks. Even the smaller community bank I use has both. I’d go to one for business questions and the other for individual questions.
FAs/FPs with niches are the ones I remembered. Don’t you want to be remembered?. I remember meeting an accountant who worked with divorcees. Months later, at another meeting, I met a Life Coach AND FA who both worked with divorcees. I introduced the later to each other at the meeting. I introduced them both to the accountant via email. (think of all the collaborator marketing they can do!)
It’s been a long time coming that I write an article on the benefits of niching, so I think I’ll start a list, on my http://www.MarketingWithIntegrity.com blog and eventually turn it into an article.
Because the benefits of being remembered are many.
When I researched for an article I wrote on Niches for FAs, who got into my article as examples? (FAs that had niches.)
For planners like me who are not targeting “high net worth” clients, I have always struggled with this concept that I should specialize. I understand that patients with different medical conditions have very different needs and thus will require very different doctors. But I’m not sure the same can be said for middle income clients seeking financial advice. When I evaluate my clients I think most of them share 90% of the same needs, regardless of what their occupation is, their age is, their marital status is, etc. I can see that the “perception” of specialization sometimes could be a benefit, such as some teachers thinking that a “teacher specialist” planner is more qualified to help them than other planners. Still, in my experience I have not found this to be the norm. Instead, as long as we provide superb service for a reasonable fee and are trusted (the MOST important things that MOST of our clients want), we receive plenty of referrals from people of all backgrounds, and our business grows. But, I remain open minded.
Steve,
You bring up an interesting point, but from a marketing standpoint, it may not be directly applicable – the client’s don’t know that they share 90% of the same need, and that you’re doing the same things for them that you do for everyone else – it’s the 10% that is different, something special, that you’re going to hang your hat on. All CPA’s are capable of preparing taxes, but for the 10% that need a specific shelter or rule enacted, and forms and letters submitted for a little-known off-shore account type, you are a specialist in THAT, because you know what’s required and helped them with it. All of this nicheing is generally good advice, it’s really just a numbers game. More qualified leads turns into more profitable clients, more unqualified leads does not . . .
Michael,
We just did a survey and helping advisors to discover “their” niche was one of the top issues that advisors identified. We have also been finding that many advisors that have all of the right training, designations and technical know how are lacking in their ability to efficiently and effectively manage the practice. Often times it’s an exercise to see how many times throughout a year they can reinvent their process. This leads to frustration for the client, team and the advisor. By focusing on a niche, advisors often begin to recognize the need for systems and processes. In other words, bringing their technical knowledge and efficiently combining it with practical applications of that knowledge. Most fast food chains not only know how to best cook a hamburger…they have created equipment that provides a process to cook the hamburger the same each and every time. For 21st century advisors creating a unique client experience through the use of systems and processes is critical…combining those systems and processes and focusing on a niche is powerful.
We love your postings and often share them with the advisors we work with around the world.
Keep it up!!!
Michael Palumbos
co-founder http://www.7figureadvisor.com
Michael – I just discovered this post and I really like it.
As a reference, in the last Cap Gemini Wealth Management Report, I found this quote: “Segmentation of clients has evolved from traditional techniques based on HNWI age , wealth level and risk profile to advanced approaches based on behavior.”
The social web enables behavior based micro-segments that can be very profitable for advisors. As an example… Women Investors in Silicon Valley who are interested in crowdfunding. There was no way before big/smart data than anyone could target a niche like this.
Best
I am re-reading this old article and I really like it.
Also….when you say: “Now imagine what happens when a doctor who needs a financial advisor begins the process of searching for one.” – I would add that is already way too late.
The key is for the advisor who wants to get the business of this doctor (and of many doctors in his area) to build relations upfront so that the doctor will trust him in the first place.
Best