Check out financial advisers’ websites and you may notice a common theme: They define their market broadly. In many cases, advisers describe their firm as serving people of all ages across a range of professions who seek financial freedom and peace of mind.
When Michael Kitces reads such things, he tends to shake his head in frustration. Kitces writes the Nerd’s Eye View , a popular blog for advisers and consumers. He’s also director of wealth management at Pinnacle Advisory Group in Columbia, Md.
“I see advisers’ websites that say they specialize in helping individuals, families, business owners and institutions,” he said. “That’s almost everyone on the planet.”
Kitces, a frequent speaker at adviser conferences, urges his audiences to rethink how they deliver their message. Rather than seek to attract a wide swath of clients, he suggests that they narrow the field. “Advisers need to get super-specific on who they serve and then change their websites and value proposition to serve those groups,” he said.
Yet he finds that many advisers resist this approach. Instead, they adopt what he views as a misguided strategy of marketing to just about anyone. “The wider you stretch your net, the more holes you have and the less fish you catch,” he cautioned.
He cites the 80/20 rule as it applies to an adviser’s book of business: 80% of profits flows from 20% of clients. But then he adds a twist. What if the entire clientele consisted of just that 20%? By targeting a narrow niche (ideally, one that other advisers overlook), Kitces contends that an adviser can thrive with just “50 great clients.” He crunches the numbers to make his case.
Assume that an adviser charges between $2,500 and $5,000 in annual fees, he begins. Use $4,000 as the average collected per client, per year. With 50 clients, that’s $200,000.
“With just 50 clients, you might keep 80% of that revenue, especially if you have a smaller firm with less overhead,” he continued. “So you’re netting $160,000 a year.” Such a steady stream of revenue can prove sustainable over time, he adds. That’s because well-run firms maintain a client retention rate around 97%, so an adviser would only need to replace perhaps one client every year.
“I’ve seen advisers really go deep in differentiating themselves,” Kitces said. “They can target [subgroups of] millennials or professions such as doctors, dentists or even pharmacists. Or they can specialize in certain trades or affinities.”
Kitces marvels at an adviser in the Midwest whose firm focuses on helping professional bass fishermen with their investments. Digging further, Kitces learned that bass anglers can earn millions of dollars in prize money at tournaments — and it’s possible to build a practice around an elite core of these fishermen.
For advisers stuck in traditional approaches, Kitces prods them to revisit their assumptions about their role. Decades ago, advisers largely sold their company’s financial products. If they found a competitor offering what they deemed better products, they’d job-hop. “Now what you’re getting paid for is you and your knowledge,” Kitces said. “It’s the expertise between your two ears. The products alone aren’t differentiating you enough.”
As a result, the biggest trend facing advisers involves bolstering their education, Kitces said. That means earning professional designations beyond the certified financial planner (CFP) credential to demonstrate a deeper grasp of complex financial matters.
“As technology marches forward, there’s pressure to step up and provide knowledgeable advice beyond the products you’re selling,” he added. “We’re seeing rapid growth not just in CFP certification, but in post-CFP certifications such as in the retirement specialty (RICP, RMA), wealth management (CPWA), investment (CFA, CIMA) and life insurance (CLU).”
