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As the steady drumbeat continues to beat about the value of planners creating niche practices, most discussion of niches focuses on having a more clearly defined value proposition for clients and being able to make yourself more relevant for a target client market. Yet a recent article points out another important benefit that emerges when lots of planners all begin to establish niche practices - the opportunity for cross-referrals between planners with different, non-overlapping niches! In a world where most planners are generalists who all do everything for everyone, there is little need to ever cross-refer; but when most planners specialize in niches, cross-referrals can become increasingly common. And if planners will well-defined niches are more effective in converting prospects into clients, then the reality is that a collaborative group of niche planners may generate more clients in total than all of them could achieve by each acting as an individual generalist, as the whole really can act more effectively than the sum of its parts!

The inspiration for today's blog post was a recent article by financial planner Dave Grant entitled "To Grow, Think Small" regarding the value of developing a niche for financial planning practices. In the article, Grant highlights not just some of the usual benefits to a niche practice, but also highlights his utopia - where planners, operating in niches, market collaboratively and cross-refer actively, because they each have a narrow, non-overlapping niche.

The Value Of A Niche

As discussed previously on this blog, one of the primary benefits of having a niche is that it makes you more referrable. By providing people with a concrete definition of both who you serve, and who you do not serve, you give your referral sources a much clearer picture of how to identify who might be a prospective client for you, and the assuredness that if the person is referred to you it will be an appropriate match. The more specific the niche, the clearer the target client is, and the more the planner's services will resonate with the person being referred.

Accordingly, merely having minimums - which does define certain people as potential clients and others not - is not really an effective niche. Few people get as excited about the scenario "You should work with my planner; he only works with people who have $5 million and live in our city, and since you live here and have $5 million and can afford his fees, you must be a perfect fit!" as they do about the scenario "You should work with my planner; he specializes in handling executive benefits like ours, to help us make the right decisions about our options and deferred compensation, and figure out how to transition from executive life to retired life." Both situations may describe the same prospective client, but the client will respond far more favorably to the latter than the former. In fact, well-defined niches can be highly effective at attracting inbound clients as well, as people are attracted to those that specialize in serving them.

Having A Niche For Cross-Referrals

In addition to the above opportunities, Grant notes that when planners take on niches, they also create the opportunity for cross-referrals. For instance, if four planners each took on a niche - one targeting doctors, the next targeting teachers, a third focused on lawyers, and a fourth on restaurant franchise owners - then any planner that came across a prospect in any of these four niches could either serve the client directly, or refer it to the right planner who specializes.

The typical approach for most planners is to say "Well, since I'm a comprehensive financial planner, I can work with anyone [who meets my minimums and can afford my fees]" so why would it benefit me to refer? The answer lies in the fact for virtually all planners, not every prospective client they talk to becomes a client in the end. As a result, the difference is that four planners who each specialize can close more clients than each planner who individually tries to serve everyone.

For instance, if the average planner closes 1/3rd of the prospective clients he meets, then the average planner who meets 12 prospects through the year might get 4 clients. However, if the average niche planner closes 2/3rds of the prospective clients he meets (because of the better fit due to the more specialized focus), then even if the specialized planner can only find 9 prospects (due to the narrower focus), the niche allows this planner to 6 new clients. 

Multiplied across a group, though, this becomes even more effective. Of the 3 prospects the niche planner might have met who couldn't be served, it's likely that some of them could have been served by other planners who have that niche. Thus, the niche planner refers out people who aren't a match, and in return receives referrals from other planners in a similar situation. As a result, the niche planner suddenly has an opportunity to close 2/3rds of 12 prospects (which include 9 he found himself and 3 that were referred to him), bringing his total new clients to 8, doubling the new clients he would have had by simply trying to do everything for everyone. And each planner in the cross-referral niche group would enjoy similar benefits!

Niche Cross-Referrals In Action

In point of fact, the early stages of Grant's utopia vision have already begun to take root.

For instance, a number of life insurance professionals I know have recently begun to focus their businesses on just doing life insurance, offering to become a specialist for other planners rather than doing everything for everyone they meet, and in fact referring out prospective investment or wealth management clients to others; this new trend is being accelerated by providers like NextGen Advisor and Low Load Insurance Services, which also provide a niche life insurance offering for financial planners (although don't necessarily provide the same cross-referrals).

Another early example of niche cross referrals are a growing base of hourly-fee planners under the Garrett Planning Network forming relationships with high-minimum wealth management firms in their area. The wealth management firm refers prospects that don't meet their minimums to the hourly-fee planner, and the hourly-fee planner refers higher net worth prospects who are interested in comprehensive wealth management services. Because the firms have little overlap in their target clients and services, they cross-refer far more than they ever compete. (Although strictly speaking, the dynamic could likely be enhanced further if the firms had a clearer target niche than just pursuing different, non-overlapping business models.)

In the end, the potential is tremendous, although the transition from here to there is somewhat more difficult. But notably, it doesn't require everyone to convert to a niche at once. Even just a small subset of planners in an area who create a focused niche and build relationships with other planners who have non-overlapping niches have the opportunity to start collaboratively creating more business for the group as a whole than each of them could collectively but individually create on their own.

But the bottom line is simply this: as long as all planners all say they can do everything for everyone, there is no opportunity to cross-refer, even though the reality of marketing is that the public identifies more effectively with specialists than generalists. Once planners accept that a focused niche can both be more referrable and makes other planners potential referrers instead of potential competition, they create a unique opportunity for growth that do-everything-for-everyone planners can't.

So what do you think? Do you have a well defined niche? Are you thinking about establishing one? Have you ever referred out a client to another planner, and if so was it related to his/her niche? Have you ever been referred a client from another planner, and if so what do you think brought the referral to you? Do you share in Grant's vision of cross-referral utopia?

  • Dave Grant

    Thanks for the shout-out Michael!

  • tom brakke

    This posting approaches the idea from the point of view of planners. That begs the question as to whether it is good for clients if there is a proliferation of niche providers.

    You would think so, since planners and other advisors would not be stretching to provide services where they can’t readily add value for clients. But it is hard to get advisors to the point where they are willing to give up that “share of wallet” in the expectation that greater client satisfaction will lead to more business down the road.

    The greatest thing that could happen for clients would be a transformation of the advice business into a culture that acknowledges the benefits of second opinions. Recommending that clients get additional perspective from other advisors might sound radical, but it can help them solve their problems and will likely strengthen rather than weaken the bonds with the advisors who aren’t afraid of their clients having access to more information rather than less. Such is the basis of true trust.

  • Gabe

    The second to last paragraph is the hinge of the blog post. Will planners ever turn down work that is outside their niche? I think most will not, but I hope I am wrong.

    I come from the public accounting profession, and the idea of niche marketing is catching on. The problem is that most partners will still take any client that can pay the fees, regardless of industry or niche.

    True expertise will always be lacking if you continue to take on all work that pays. This idea applies to all professional service areas, not just financial planning.

    Thanks for the thoughtful post.

  • Alan Moore

    I believe this will take hold once planners realize that by developing a niche market, they will become much more efficient.

    Take a financial planner that only works with teachers in a single state. They are able to answer questions without looking up the answer, without calling other planners for help, and without wondering if they interpreted the article they found on Google correctly. How much time does a planner waste looking for answers when they could develop their own niche and have referred the teacher to a planner that focuses on teachers?

    I estimate that delivering a comprehensive plan to a niche market would cut plan development time by 50% over the long term. It is the only way to truly scale a financial planning business.

  • Steve Smith


    Do you consider disparate investment philosophies among advisors to be niches?

    There are pure passive strategic asset allocators, dynamic asset allocators, stock jockeys, those that attempt to select the best active mutual funds, separate account aficianados, alternatives junkies, insurance product devotees, etc.

    It seems to me this is a much bigger differentiator as far as the ultimate wealth management experience than between a well served attorney and a well served dentist. Particularly once they are in retirement.

  • Jeremy

    This is a very important topic and one we are working through now at our firm. What would you explain the niche to be at Pinnacle?

Michael E. Kitces

I write about financial planning strategies and practice management ideas, and have created several businesses to help people implement them.

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