Financial advisors are under increasing pressure to justify their costs. So-called “robo-advisors” offer clients low-cost, automated investment services, while the client relationship model, now in its second phase (CRM2), demands transparency regarding the fees that clients pay for investment advice.
These trends are making advisor compensation more visible to clients, says George Hartman, managing partner of Elite Advisors Canada Inc. in Toronto. Therefore, you are going to have to demonstrate your value to your clients in a meaningful way.
One way to show clients that your services are worth the fees clients pay is through specialization, Hartman says. Bringing a unique value proposition to the table – through the products you provide, your processes, your knowledge or your capabilities – can help to ensure your business thrives.
There is no question, says Sylvia Garibaldi, business coach and founder of SG and Associates in Toronto, that advisors who specialize generally are more successful than those who do not. And research confirms this assertion. For example, a study of advisors in the U.S. by Boston-based Cerulli Associates found that the 15% of advisor practices that focus on a unique clientele account for 29% of overall advisor assets under management as of the end of June 2013.
In addition, it stands to reason that serving a narrow market is a more practical and efficient way of working within an increasingly complicated industry. Serving clients who share common characteristics and financial needs can enable you to narrow your shelf of products and services and to streamline your communications.
Furthermore, advisors who specialize usually are more satisfied with their careers.
Léony deGraaf, a certified financial planner and president of deGraaf Financial Strategies in Burlington, Ont., made the move toward a more specialized practice a little over a decade ago. At that time, to formalize her transition, she earned her elder planning counsellor designation and aimed her marketing efforts exclusively toward the seniors market.
“I’ve been able to establish myself as more of an industry expert,” deGraaf says, “rather than trying to be a ‘jack of all trades and master of none’.”
deGraaf says zeroing in on her target market makes for a more “holistic” approach to financial planning. She sells herself to her elder clients as their coach, offering access to advice on any number of decisions that touch on finances. deGraaf lets her clients know about her “financial coach” role early in the relationship and that she is available for any queries clients might have, even if those issues technically don’t fall under the purview of financial planning.
“If I can’t help,” she says, “I can point [clients] in the right direction, saving them time and legwork in trying to do it all themselves.”
This approach confirms deGraaf’s specialization in the minds of her clients and makes for a more consistent marketing message.
It also makes prospecting easier, she says: “I don’t think you can be extremely effective with all demographics or niches. Focus on one and become that industry expert, and the business will naturally flow your way.”
deGraaf always was interested in serving older clients. She began her career working with her father, who had been an advisor for almost half a century and had a number of senior clients. The decision to focus exclusively on that segment just made sense to deGraaf: she had an affinity for interacting with senior citizens, starting with the close ties deGraaf had as a child with her grandparents.
Today, 75% of deGraaf’s book is made up of seniors. The remainder is a mix of these clients’ family members.
While focusing on one niche ultimately means rejecting other clients, deGraaf says, her decision to specialize was well worth it: “It definitely makes it easier to get up and work every day, when you have a passion for what you’re doing.”
Graeme Treeby, founder of Special Needs Planning Group in Stouffville, Ont., specializes in helping caregivers set up financial plans for their disabled dependents.
More than two decades ago, Treeby, who had been an accountant for 15 years at the time, started looking for information on how to ensure the financial wellbeing of his disabled daughter. He found a troubling lack of information for parents in his situation.
Treeby had stumbled upon his niche.
He made the transition from accounting to insurance, specializing in providing insurance-based financial plans for special-needs clients. The main objective of most of Treeby’s plans is to prevent the disabled clients from losing government benefits upon the death of their caregiver.
This specialization has brought such satisfaction to Treeby that he doesn’t consider his job as work. “I haven’t worked in 22 years,” he says, jokingly. “My wife keeps asking me when I’m going to get a real job.”
Treeby agrees that specialization requires both knowledge and a personal commitment. “You can’t really do anything [well],” Treeby says, “if you don’t have a passion for it.”
Becoming a specialist can be a long process, but for many advisors, including Treeby and deGraaf, that process can be both financially and emotionally rewarding.
The following steps can help you make the transition from generalist to specialist:
– Define your niche – or niches
One way to determine a potential area of specialization is to examine your book and identify the clients you most enjoy working with, says Kim Poulin, business coach with The Personal Coach in Montreal.
There are several ways to delineate an area of specialization. You might focus on a specific profession, such as business owners, IT professionals or airline pilots. Some advisors build their niche based on the way they relate to clients – that is, relationship-building as opposed to investment management. Other advisors base their specialization on the type of products and services they offer their clients, such as responsible investing.
The key, Poulin says, is to recognize where your strengths lie and where your business seems to be heading.
Some advisors might take a “microniche” approach – for example, working with other advisors to provide critical illness insurance for clients. Other advisors may develop more than one specialization; these may be related, Garibaldi says, but do not have to be.
Jennifer Black, financial advisor with Dedicated Financial Solutions in Mississauga, Ont., says that her book has evolved over the past decade in such a way that today she works with two main types of clients: business owners and the widowed.
Black began targeting owners of small, local businesses with $2 million-$70 million in revenue. Her business partner, who has an accounting background, worked with a number of accountants to get the word out that Dedicated Financial Solutions’ extensive tax knowledge would be an important element of financial planning for these local businesses, Black adds.
The second target group, widowed clients, became an area of specialization less deliberately. Black had helped a close friend whose husband had died to deal with the financial ramifications of the sudden death.
Black realized that recently widowed people were an underserved group that needed financial advice at a vulnerable point in their lives.
So, Black and a partner launched a website, widowed.ca, to offer more information to widows and widowers.
While Black’s two niche areas are unrelated, she says, they are complementary, in that clients within these groups are almost polar opposites in the way they make financial decisions.
“Business owners tend to make decisions quickly and know what they want,” Black says. “They’re able to look at a set of facts and move forward.”
Grieving spouses, on the other hand, need more hand-holding, sensitivity and education.
Working with two disparate groups can make for a more challenging marketing plan – client mass communications must be worded to appeal to both groups, for example. And, Black adds, there can be overlap: business owners deal with death, too.
You can serve two niches successfully, Garibaldi says, if you create processes that target and serve your niche markets while you also take steps to maintain expertise in each.
– Develop your expertise
Once you have decided on a niche, you will need to devote some time to educating yourself, Garibaldi says. Find out what keeps members of your target market up at night – through research, conversations and further education and accreditation. If you don’t dig deep, Garibaldi adds, you might come across as a “dabbler.”
For deGraaf, staying on top of issues important to elderly clients makes for stronger client relationships. She hones her skills constantly by keeping up with issues relevant to seniors, such as changes in estate administration taxes. On the formal education front, deGraaf is enrolled in the certified executor advisor designation course.
– Market your specialty
While becoming an expert is important, it’s just as critical to let your clients and prospects know that you are an expert in your chosen field. That’s where your marketing strategy comes in. Use as many avenues as you can to reach your target market, including speaking engagements and other marketing activities at events attended by members of your target market, as well as traditional advertising.
All communications should drive home the nature of your expertise, Garibaldi says, so that there is no question in the minds of clients or prospects that you specialize in this area.
If you specialize in succession planning for dentists in Winnipeg, put that information on your letterhead, your business card, your office door, your website, your newsletter and your email signature.
– Track your progress
If you’re sincere about specialization, Hartman says, you need to take the time to step back and assess your business regularly to make sure it’s on the right track. Reaching a point at which you can claim “specialist” status can take up to two years – and the process is not always smooth. You must clearly outline the direction your business will have to take at the outset, then revisit your vision at regular intervals to ensure you are progressing toward your goals.
Poulin recommends devoting a set amount of time – 10% or 20% of each workweek, for example – to specialization planning. Determine what needs to be done to move your business toward your goal, including client screening, research and education, and developing marketing and communication plans. Sticking to a specialization plan takes discipline, Poulin says, and you may find that working with a business coach can help you stay on course.
– Consider your outliers
When you become a specialist, some clients inevitably won’t fit into your planned niche. You probably will not want to turn your back on the clients who were with you from the beginning – nor should you, Hartman says. However, there is a risk that the benefits of specialization will become diluted if you continue working with too many clients who fall outside your parameters.
So, you should assess how best to deal with those clients who don’t fit your niche. Poulin recommends establishing a process to deal with them. Determine an appropriate level of service for these clients and ensure that they receive it – either from you or another a team member. You might even consider hiring a junior advisor to serve these clients.
“It’s not about carving off [outlying clients] or doing less for them,” Poulin says. “It’s about putting together a plan.”
You might decide that passing a block of clients who don’t fit your area of specialization along to a partner or another advisor is better for your business. Such a decision, Poulin says, is probably better for the clients as well; they will be receiving a level of service that is more appropriate for them.
“Someone’s bottom-tier clients are someone else’s top tier,” Poulin points out.
You also should plan how you will deal with prospects who don’t fit your niche in the future, Garibaldi says. In some cases, you might have to turn down prospects in order to devote more time and energy to your niche.
When Treeby began focusing on the needs of families with a disabled child, the assumption was Treeby would be serving not only the disabled clients but their parents as well. Treeby soon learned that this approach didn’t take into account that, besides having a child with a disability, the needs of parents in these families were too broad for his specialized practice. He now informs families that his speciality is exclusively designed for the disabled individuals, and he encourages the parents to use another advisor for themselves.
“Planning for our [disabled] children is different from what we do with parents,” Treeby says. “We’re not adding to [the children’s] well-being; we have to create it.”
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