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You’ve heard the conventional wisdom: choose a specialized niche and watch your business grow with clients who seek the expertise you offer. With the rise of the retainer model, more advisors are claiming their niches. It is seen as a powerful way to differentiate your practice, target your marketing message, streamline your client experience and increase sales conversions.
In other words, niches allow you to work smarter, not harder.
Picking the wrong niche, however, is one of the worst decisions you could make for your practice. I’ve seen too many financial advisors follow the crowd in a race to specialize – then claim a slice of the market that’s not economically viable. Choosing the wrong niche will derail your business before you ever hang up your shingle!
The ultimate success of your niche choice boils down to five Ps: pay, pain, people, platform and professionalism. Your niche needs to have all five in order to be profitable. If it’s missing one of them, that is a sign of trouble.
Let’s break them down.
Pay
This seems obvious, and yet I still watch advisors choose a niche that lacks the financial resources needed to pay them.
One advisor I counseled wanted to build her business model around undercutting other advisors with a flat fee. I advised her against this. Clients aren’t always searching for the lowest-cost provider. If they are, they may turn out to be less-than-ideal clients.
The other reason I spoke against this business model is because it’s extremely difficult to scale.
There are only so many hours in the day. By charging significantly less than your competitors, you would have to service an ever-increasing number of clients, which will cause you to hit your capacity quickly. As your business grows, you may be able to purchase technology solutions and bring on additional advisors for greater efficiencies. The trouble is that you might not survive until then, especially if you are charging rock-bottom prices.
Pain
The value proposition of a niche must relieve a significant pain point for a lot of people. That’s a solid rationale for niches such as women going through a divorce, physicians juggling an above-average income with high student debt and retiring professional athletes who want to make smart decisions with their money.
But not every perceived pain point is felt strongly. No amount of marketing, sales or branding will fix that.
Take, for example, the advisor I worked with a couple of years ago. He wanted to provide flat-fee advice to benefit plan participants at companies with fewer than 50 employees.
I was skeptical of this approach. A large percentage of business owners, even those that feel a certain obligation to their employees, don’t want to foot the bill for a financial wellness program. Employers of this size are typically more concerned with growing and scaling their business. They don’t feel this pain point strongly enough to act on it, and they don’t see the value of a financial wellness initiative.
People
There’s a fine balance between tapping an underserved market and focusing on one that’s too obscure. There must be enough people in the niche to give you critical mass. If you choose a niche that’s too narrow, you may be able to set yourself apart – but you probably won’t be able to build a business out of it.
There’s a sweet spot between being so broad that your offering appeals to too few people – and being so narrow that you can’t find enough clients. For example, an advisor with personal experience of raising a child with a rare blood disorder can build a profitable practice around the financial needs of parents with special needs children. The practice doesn’t have to cater only to families struggling with the same disease.
Platform
In order to build a successful niche, you must be able to reach your target market. Are there platforms you can use to market to the individuals in this niche (social media, direct mail, networking)?
An advisor I worked with wanted to offer monthly retainer planning to people transitioning into a nursing home, following a long-term care event. His target clients would typically be in their 70s and 80s. How would you reach this market? Most of the people at this stage in life probably aren’t scouring Facebook ads looking for an advisor. They may be off-the-grid for direct marketing purposes.
To address this market, you’d want to build long-term relationships with caregivers, nursing homes and geriatric care managers who could make introductions to prospects. But, you must be prepared to invest several years into nurturing your influencer network.
Professionalism
You want to be taken seriously as a financial professional, especially when you’re first starting out. The image you project must prove your credibility. Avoid taking on a niche that feels like a gimmick.
For instance, I once worked with an advisor who wanted to focus on people who ride motorcycles. I’m sure there are many people who ride motorcycles who have substantial assets, and a fair number of them may need financial advice. For those reasons, this niche could be profitable. But, by leading with this as your core brand, you run the risk of alienating prospects who might think your service offering isn’t serious.
The silver lining
Choosing the right niche can help advisors clarify their message, stand out and deepen their expertise – in effect allowing them to become a go-to advisor for their ideal clients. However, not all niches are created equal. In order to be profitable, a niche must have all five Ps. If it’s missing just one, you are setting yourself up for disappointment.
Not sure if your niche has legs? Run the idea by an expert who can help you see if your niche solves a big enough pain point for a large enough market with the financial resources to pay you.
Patrick Brewer, CPA, CFA is the founder and a partner at SurePath Wealth, co-founder of Brewer Consulting, and host of “The Model FA” podcast. Connect with Patrick on Facebook or LinkedIn.
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