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How To Find Your Niche As A Financial Advisor

Published: June 1, 2014 by Michael Kitces, Pinnacle Advisory Group

As more and more people earn their CFP certification and become financial planners, the mere fact that one is a financial planner is no longer the differentiator that it once was. In turn, financial planners find themselves increasingly compelled to focus into a niche where it’s easier to stand out and win clients… being a generalist may bring a lot of prospects but few clients, while settling into a niche may narrow the field of prospects but results in an incredibly high likelihood that clients (in the niche) will say yes and choose to do business.

Of course, a niche is not just conceived overnight; in practice, it’s established and refined over time. It starts with a target clientele, which leads to developing a unique expertise for working with those clients and the problems they face, and that in turn leads to the development of services and a business model to fit the clients and their needs. As services are delivered, new ways to focus on the clientele emerge, new expertise is acquired, the business model is further refined, and the process continues to iterate until a finely honed niche emerges.

However, that still leaves open the key question: how do you find or choose a niche in the first place? In truth, there are many paths to finding a niche, from focusing on a passion, to an area where you already have an affinity or connections, to your existing clients or even former colleagues in a prior line of business. For those who truly have “no idea” what to do, the easiest path may simply be to start taking anyone you know out to lunch, asking them what their needs and issues are, and beginning to define a vision for your business accordingly. By asking people what’s important to them and unique about their concerns, you can find a niche of your own, and may even discover that your interviewees become the first people to refer clients to your new business.

The Need for Niches

For most of its history, financial planners have been generalists. The sheer fact that a financial planner was in fact a “real” financial planner actually was a niche, as financial planners were no more than about 10% of all financial advisors as little as 15 years ago. It’s really only been in the past decade, as awareness of financial planning and the number of financial planners have grown, that simply being a credentialed, experienced advisor who provides comprehensive financial planning is no longer enough to be distinct and differentiated. Instead, planners must increasingly establish themselves in niches to truly differentiate themselves.

Unfortunately, though, many planners fear that by focusing into a niche, they will narrow the base of potential clients to the point that they will no longer be able to grow; as the theory goes, “If I can’t grow my business amongst millions of prospects by working with anyone, how can I grow my business more by committing to working with a narrower group of just a few hundred or thousand?” Yet the caveat is that this ultimately produces a marketing trap; casting the net wider may lead to more potential clients, but fewer actual clients, as the advisor who can/does work with anyone runs the risk of losing one client after another to specialists who are more clearly suited to that particular client… until there aren’t any prospective clients left at all!

By contrast, having a clear focus on a target clientele at least ensures that if the advisor can get in front of clients in their niche, the fit will be so “obviously” perfect that the likelihood of getting clients is very high. After all, if you were in search of the one specialist best suited to solve your particular problem for someone like you, and you actually did find a specialist who really is an expert at solving that problem for people like you, how could you not choose to work with him/her? In fact, that ultimately is the whole point of having a niche in the first place; to be so clearly differentiated in working with people in the niche that if any approach you, then working with you is the only natural conclusion!

Fortunately, in today’s environment this process is aided by the internet, which makes specialized products and services “findable” in a way they never were before, whether it’s a “unique” music group, a book for a very specialized audience, or a financial planner serving a narrow niche. Before the internet, such businesses would have languished in obscurity; now, they can be successful “long tail” businesses. The process is arguably easiest in the financial planning context, as planners do not ultimately need to go “viral” and reach thousands or millions of people; most advisors can have a very successful practice with about 75-125 active “core” clients (or sometimes even fewer!).

Yet all of this still raises the fundamental question: what, exactly, defines a niche, and how are you supposed to find and choose one in the first place?

Defining and Refining your Niche

Although there is a little murkiness around the exact definition of a niche, the three core elements of how to serve a niche successfully are relatively straightforward: you need a target clientele to serve, expertise to serve them, and a business model that’s viable to work with them.

– Target Clientele. Who do you serve, and what are their needs?

– Unique Expertise. What unique knowledge/skills can you bring to the table to serve your target clientele that they can’t/won’t get elsewhere?

– Service/Business Model. What actual services will you provide to deliver your unique expertise and how will you get paid to serve your target clientele as a viable business?

Notably, the process of serving a niche itself can help to refine the niche. These three pillars of the niche are not set once and done, but instead are iterated upon in a cycle – as you continue to focus on your target clientele, you can refine the expertise necessary to serve them, and in turn the services and business model that you use to deliver it. For example:

Your initial target clientele is serving retirees, where you will provide expert advice on how to craft a retirement income portfolio, and work with clients on an AUM basis by managing their portfolios. In beginning to work with your target clientele (retirees), you find that they have a range of other issues with which they need assistance in managing their retirement. In order to improve your expertise, you take an advanced retirement income designation program. With this greater knowledge base, you adjust your business to provide a more comprehensive retirement plan up front, followed by a separate AUM fee for managing the retirement portfolio.

As you do more comprehensive upfront plans, you notice that your target clientele are struggling especially with coordinating their Social Security decisions with their portfolios, so you go out and develop a further expertise with a training program on Social Security, and adjust your service model to include an interactive Social Security analysis as an optional package for a separate fee.

In doing this, you discover that a subset of clients from the local XYZ manufacturing plant have an especially complex challenge of coordinating their retirement portfolios, the onset of their unique pension package, and the timing of their Social Security benefits. You reach out to XYZ’s human resources department with the help of one of your clients to get details about the pension rules and benefits package of long-time XYZ employees, and develop an expertise in their plan. In the process, you learn that the HR department is overwhelmed with retirees who are asking questions about how to coordinate between the company pension and Social Security, but they don’t have the resources to address the issues, so you agree to begin doing a quarter seminar for employees, marketed with the support of your relationship with the company’s HR department. You offer the seminar for fee, but charge a modest fee for those who want an individualized analysis for coordinating XYZ’s pension, Social Security, and portfolio income, and then provide ongoing services in retirement portfolio and income management for those who wish to have help and meet your minimums.

At this point, your business is: You now specialize in the niche of XYZ retirees who need to make coordinated decisions between their pensions, Social Security benefits, and portfolio income options by providing joint seminars with XYZ’s human resources department for free, followed by a customized analysis that integrates the details of XYZ pension benefits, Social Security, and retirement portfolios – about which you an established expert on each – for an initial planning fee, and then provide ongoing assistance in managing their retirement assets and generating the retiree cash flows necessary to supplement their fully optimized pension and Social Security benefits. 

Now, if you were a retiree leaving XYZ who was confused about your retiree pension options and how to coordinate it with the rest of your $1M of retirement assets and available Social Security benefits, who are you going to contact for help?

The fundamental point here is that the “final” niche was not reached from an initial decision. Instead it start out a bit broader (“just” focusing on retirees), expanded into deeper specialties based on what clients said they needed (coordinating Social Security benefits), adjust as a business model to serve those needs, went deeper into a subset of clients who had an even more unique need (XYZ retirees), expanded expertise further for their unique challenges (XYZ retiree pension and other benefits), and then iterated on the business model again (seminars for retirees, a customized analysis for a modest price, and subsequent ongoing AUM for those who want an ongoing relationship). Notably, this still doesn’t mean you can’t (or won’t) serve other retirees as well… but if you have a chance to meet with a new prospective client outside the company, or another XYZ employee who can provide you more referrals at XYZ that reinforces the niche, do you even really want another client outside the niche?

Finding your Niche

Of course, this process of refining your niche leaves open one key, fundamental issue: how should you find your (starting) niche in the first place?

In practice, it seems the answers to this question are almost as varied as the number of planners (or people!) there are who have ever sought out a niche. Some advocate that you should focus on your passions (even if it’s bass fishing!), or start with “why” you do what you do.

Others may look to tie a niche to a community they have existing ties to (e.g., a parent of a special needs child deciding to specialize in families with special needs children); in the case of career changers into financial planning, many craft a niche around their former industry and the connections they already have. Planners with an existing practice might look at their book of clients and decide if there’s a particular subgroup where they’ve already crafted some expertise and have a few connections, upon which they’d like to expand and grow. In other words, the reality is that most planners actually find a niche in a somewhat reactive manner – the niche simply emerges from where they already have a network and personal connections!

For some, the initial process of finding a niche must be more proactive, if there really is no other ‘natural’ affinity towards which they can direct themselves. So how do you find a brand new niche from scratch? Here’s a starting point:

1) Find anyone you know who you could work with, or who knows someone you could work with. (Note: this pretty much means anyone you know; if you already have some clients, pick the ones with whom you’d like to do more business [with them or people just like them]!)

2) Ask them out to lunch, for the purpose of picking their brain about how you can build your business working with successful people like them, and better understand what their needs and issues are in the first place. (Note: You are not asking to do business with them; you’re asking to learn how to do business with people like them.) (Second note: Phone calls are ok, but lunch is better; it’s longer, there’s more time for informal conversation and establishing a relationship.)

3) Come prepared with questions to ask them about their work, their industry, their financial challenges, what sorts of financial issues keep them up at night, etc.

4) At the end, ask them for an introduction to 2 or 3 other people you might talk to, simply to have the same conversation to understand their issues/concerns/challenges. And ask their permission to follow up once you formulate the first version of your business plan, simply to ask for their feedback and constructive criticism.

5) Reach out to those 2-3 people, and repeat the prior steps. Then do it again. By now, you’ve met with about 10 people.

6) Cull together what you’ve learned from your 10 lunch interviews into the initial stages of a business plan, articulating the three keys of the niche: who you will serve (recognizing what expertise you will need to serve them), what services you will provide to deliver that expertise, and what your business model will be (how will you get paid for what you do).

7) Share your prospective business plan with your 10 interviewees (assuming they said yes when you asked their permission!), and ask for their feedback and constructive criticism. Adjust accordingly based on their feedback!

8) Ask your 10 interviewees – with whom you now have a relationship – if they know anyone who might be helped by the business you’ve just created with their input. Don’t ask THEM, ask if they know anyone who might benefit. Though you may well find that your first few niche clients actually do come from your interviewees!

So for those of you who are struggling with a niche, this 8-step process should help you get underway… of course, you should still be ready to refine and iterate on your niche from there! If you begin the conversations with your first few interviewees and really can’t come up with any challenges they face, issues they need help with, or a way to get paid serving them, consider pursuing a new path. But be cautious not to assume people “just won’t pay for it” – people will pay for solutions that solve their greatest problems and challenges, which by definition is what you’re crafting with this process. So start with what they need, then decide how you will charge them for the specialized value you’ll now be bringing to the table! And notably, even if you already have some clients (and are not starting from scratch), engaging in this process with the type of clients you wish to do more business with can be a great opportunity as well!

The bottom line, though, remains that as more and more advisors begin to deliver financial planning, just being a good, experienced financial planner is not longer sufficient to differentiate yourself (especially for newer advisors just starting out). Getting more focused towards a niche gives you the opportunity to truly differentiate yourself – to literally be the one person in the world who is the most specialized at serving those particular clients. You don’t have to figure out your niche at the first attempt – it is an iterative process of refinement – but the sooner you start down that path, the sooner you can build your practice towards your ideal clientele. And fortunately, in a world where most advisors can only handle a ‘mere’ 75-125 core clients (or fewer!?) to have a successful practice, remember that virtually any niche can work, and that it’s almost impossible to be too narrow when internet search makes anything discoverable!

Michael Kitces is the Director of Research for Pinnacle Advisory Group, and publisher of the financial planning industry blog Nerd’s Eye View. You can follow him on Twitter at @MichaelKitces, or connect with him on Google+.