As financial advisors move inexorably towards niches and specialization to grow their businesses and differentiate, one of the biggest challenges is simply figuring out which niche to pursue, how to actually get the expertise to pursue it, and what the business model is to serve it well. As the reality is that not all niches fit our "traditional" business models of managing assets for a fee, or implementing financial services products. A case-in-point example is the emerging divorce planning niche, and the unique role that financial advisors can play in the collaborative divorce process.
In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we talk live from the annual conference of the Institute for Divorce Financial Analysts (IDFA), with Justin Reckers, who has built a successful advisory business focused on the divorce niche.
For those who aren't familiar, the IDFA grants the Certified Divorce Financial Analyst (CDFA) designation, which provides the baseline education necessary to understand the unique financial planning issues involved in divorce planning. Which is helpful not only to better understand the issues a client might face when getting a divorce, but gives the advisor the expertise to become the financial expert in the new world of "collaborative divorce" - a new type of divorce process that is intended to leverage neutral third-party experts, including a financial advisor, to expedite the divorce process without the involvement of a judge or the court system.
In fact, Reckers notes that a major revenue stream of his business is charging financial planning hourly fees - at $325/hour - to serve as a financial advisor "neutral" in collaborative divorce cases, with typical hourly fees totaling up to 10,000 to $12,000 per case, and some ultra-high-net-worth divorce cases where fees can add up to $100,000 or more. A substantial hourly fee specialization opportunity, in a world where most financial advisors struggle just to bill $2,500 of their time to construct a financial plan!
Other business models in the divorce niche include doing expert witness work in divorce cases that do go to court, with the opportunity to ultimately work with the clients in those cases after the divorce has finalized as well. (Just be certain not to solicit clients during the case, which can be a conflict of interest that undermines your credibility as an expert witness!)
In fact, Reckers has had so much success in the divorce niche, that he's launched a turnkey financial planning platform - Wellspring Divorce Advisors - that teaches those who have obtained the CDFA designation how to actually build a successful advisory business in the niche. And with upwards of 2,000,000 people getting divorced every year, there's ample room for more growth amongst financial advisors in this particular niche!
But the bottom line is simply to recognize how financial advisor generalists often struggle to get paid for their time, while those who specialize in a niche - such as divorce planning - have the opportunity to get paid for their expertise, at far higher hourly rates, with the opportunity for much deeper client engagements that "just" a standalone financial plan. And unlike many niches - where the only path to expertise is personal experience and a journey of self-education - the opportunity of the divorce niche is perhaps especially appealing, given both designations like the CDFA program from IDFA to learn the requisite expertise, and financial planning platforms like Wellspring Divorce Advisors that teach how to use that expertise to execute the niche business model!
(Michael’s Note: The video below was recorded using Periscope, and announced via Twitter. If you want to participate in the next #OfficeHours live, please download the Periscope app on your mobile device, and follow @MichaelKitces on Twitter, so you get the announcement when the broadcast is starting, at/around 1PM EST every Tuesday! You can also submit your question in advance through our Contact page!)
#OfficeHours with @MichaelKitces Video Transcript
Welcome, everyone! Welcome to Office Hours with Michael Kitces!
As you can see, I don't have the normal setup today. I'm actually out at a conference. We're at the conference for IDFA, the Institute for Divorce Financial Analysts.
IDFA teaches a program called the CDFA, which is a divorce specialization designation. Which is apropos, since I was here talking at their conference today about why I really think the biggest opportunity in the industry going forward is all about niches and specialization. As more and more competition comes into our world, more and more advisors converge on the same AUM model, you have to differentiate yourself and your advice somehow. And the most straightforward way you do it is to have some kind of post-CFP niche or specialization.
And so, I asked Justin Reckers here, our guest for this week's Office Hours, to talk about what IDFA is, what the CDFA designation is, and how a divorce niche actually works. Because this guy has actually built an advisory business in a divorce niche! So I thought he'd be a good person to talk about how you, too, can build an advisory business in a divorce niche!
What Is The IDFA And The CDFA Divorce Designation?
To start, Justin why don't you help fill people in on what the IDFA is, since I know you've been involved for a while now?
Justin: Yeah, I'm actually a former board member of the Institute for Divorce Financial Analysts. The entity has been around in some derivation about 15-20 years now. And they have credentialed somewhere in the neighborhood of 5,000 people as CDFAs.
Michael: That's a lot of CDFAs! 5,000-plus CDFAs!
Justin: Absolutely. A huge amount of people; I want to say there's about 2,600 that are currently active at this stage, meaning that they're maintaining their designation, and are doing the work in the divorce niche. You can assume that most of them are financial advisor-types. Though there are some CPAs, even some divorce attorneys out there, too, that are CDFA-credentialed.
Michael: And CDFA stands for Certified....
Justin: Certified Divorce Financial Analysts.
Michael: Okay. So IDFA is the organization, the credentialing organization. CDFA is the actual designation.
And so, what's involved? Is this a CFP-style education? I take a bunch of courses, and then I have a comprehensive exam at the end? Or I just have to get through the courses? What is the actual education component?
Justin: So they're self-study courses. You sign up, you get manuals sent to you, you do your self-study, and then the test is actually done in modules. There's four total modules at this stage.
Michael: Okay, so I go through each module on different issues around divorce planning and divorce specialization?
Justin: Correct, correct. The credential itself is really meant to be a basic knowledge provider. And beyond that, it really does take experience to get into the niche and really understand the difference between financial advice in the generalist population, versus the specific divorce niche.
So if you want start down the path of the divorce niche, CDFA from the IDFA is where you start.
Michael: And I notice just being here at the conference... there are folks that are deep into the niche, and there are folks that have clearly done the CDFA, but are now still they're trying to figure out: "What is my actual business model in the niche?"
Forming A Niche Advisory Business in (Collaborative) Divorce
Michael: So as someone that's done this, can you talk a little bit about what is the advisory model working in the divorce niche? I know there's a world out there of collaborative divorce, where financial advisors get involved.
But to start, can you explain, what is collaborative divorce? And how does a financial advisor actually plug in and get paid for being part of a collaborative divorce process?
Justin: Yeah, absolutely. First of all, I want to note that collaborative divorce is really just one revenue stream out of seven that we do in our business. But the collaborative divorce model is a really interesting one, because it is the only model that, to my knowledge, exists with the idea of having a neutral financial professional involved in the divorce case.
Michael: Okay. So the advisor sits in as a third-party neutral analyst? "I'm just going to make sure they actually understand the numbers", and spotting issues like "Hey, remember that IRA is pre-tax and this account is not. So if you each one get one account but they're different tax status, you might get the short end or the long end of the stick."
That sort of stuff?
Justin: Yes, and that's just the basic side of it.
When you get involved as a neutral, as a financial advisor, you've got to do the discovery on the front end, put together assets and debts and income and expenses. Level the playing field, because the cliche still exists that one party almost always has more financial knowledge. And so, that it makes it unfair, you could say, in divorce negotiation.
And then we get to actually, as neutral, create creative settlement strategies and help people understand the long-term impact of them. Instead of having a judge make decisions for the people, when the judge really doesn't care, or doesn't have the time to care, or the education on finances to make the right division of assets. You have a neutral financial advisor, such as a CFP or CPA, who's there to create better financial outcomes for both parties. It's a great process.
Michael: So I'd function like an expert witness when this goes to court? Or is the point that we're trying to not go to court with collaborative divorce?
Justin: Good question. The collaborative process is entirely outside of court. That's the entire idea of it. In fact, it has what's called a withdrawal stipulation that parties sign on the front end, and it says, "If we do resort to court, our neutral financial, our two divorce attorneys, our mental health professionals as well if we have them, all go away." So it provides teeth to the commitment to not going to court.
Michael: Okay, because basically what happens, if I'm one member of the couple, and we start the collaborative divorce process, and I'm paying you, and I'm paying my attorney, I'm in for all that cost - and it's all lost and wasted - if I withdraw out of it? Then I'd have to eat my costs and start over again. So it's basically a poison pill to make you not want to withdraw?
Justin: That is the poison pill. We call it a withdrawal stipulation. Exactly.
Getting Paid In A Divorce Niche When There Are No Advisory Products?
Michael: So how do you get paid in this? This is not a financial products implementation or AUM kind of model, I'm presuming. How does the advisor get paid?
Justin: Good question. You can say I kind of work like an attorney. I have a completely separate business incorporated, just to run my divorce practice through. I charge retainers, and I bill hourly fees against my retainer. Part of the reason why I have a separate business is so I can take those big retainers [without triggering RIA custody rules].
Michael: Okay. So the person wants you involved, but if it's acrimonious, people aren't exactly happy to write a lot of checks, so you require them to put $5,000 aside upfront as a retainer, and then you do work as a neutral, and you bill that account for $200 an hour until you get through it?
Justin: Yeah, my standard retainer is $5,000. The client pays upfront into the retainer, and then I bill my hourly rate against it. Sometimes, I will ask the client to refresh my retainer if it gets used. Sometimes that's necessarily, sometimes not; it depends on how good they are, how responsive they are to my requests, etc. The average collaborative divorce case for my business is between $10,000 and $12,000 of total billing for my firm.
Michael: Wow. So like in a world where advisors are often saying "How do I get a $2,500 planning fee?" You're doing $10,000 or $12,000 per client. That's a hefty number!
Michael: But ultimately, it all comes down to hourly billing?
Justin: It's all hourly billing, yep.
Michael: So what do you bill at?
Justin: I'm $325 an hour, and my staff ranges from $65 to $250 an hour, depending upon their background and their training. One of them is a CPA and CDFA, as an example. She's the highest billed other than me.
Michael: Okay. That's part of what they deign on you when they hire you... is you'll bill some of your work, you'll bring in your staff as appropriate. Obviously, you want happy clients, so you try to manage costs as reasonably as you can.
Michael: And then the client is simply billed on hourly rates for your divorce support services?
Justin: Yeah. And we've had cases that have gone as big as $200,000 in total billing for our firm.
Justin: They were very wealthy couples. But we've done a couple of $250 million+ divorces in our practice over the years.
Michael: Wow, okay.
Justin: And so, the more complicated it is, the more my time costs.
Justin: But people still need to realize that it's always significantly cheaper...I shouldn't say "always." Almost always significantly cheaper than going to a litigation route, where you might have three people doing the exact same work that I do at one time.
Michael: Right. Because now, the other person has their version of you, and then I've got my version of you, and then my version fights your version, and then we've got to get a third one to be the tiebreaker...
Michael: And the cost multiplies. That's part of the appeal, I guess, of collaborative divorce...
Michael: But again, I think it's interesting from the financial advisor's perspective. Here's a guy who bills $325 an hour for financial planning work within a niche. And has had $10,000 cases or $100,000 planning fee cases, in a world where most of us are struggling to sell a $2,500 plan.
For a lot of you who watch the "Office Hours" regularly, you know I beat this drum often. But this is why niches and specialization, including in areas like divorce, matter so much! If you're just doing generic planning, at the end of the day, you're getting paid for your time, at however much time you can sink into the process. Justin bills for his time, but he's getting paid for his expertise. That's what you get when you're in a niche.
Michael: So you don't get to command $325 an hour because you're a hyper-efficient worker bee. You charge $325 an hour because that's what you can do when you've got a niche specialization, when you pick an area that, like divorce, has a sustained need. It's what, thousands of people every day that get divorced, or some very sad number?
Justin: Yeah, two million divorces a year in the United States.
Michael: Two million divorces a year.
Justin: Yeah, a million women and a million men, and they all need help. They don't all need financial help, necessarily. But as we talked about earlier today [in Justin's keynote session], the numbers for the people who happen to be the holders of wealth, the gray divorce people, the boomers and whatnot, their divorce rates are going up.
Taking Your Advisor Niche To The Next Level - Becoming the Expert In The Field
Michael: So I want to ask really fast: you mentioned other business. You said that the collaborative divorce and the hourly billing, is just one version of what you do in this space. So can you talk about other ways that you're in the divorce niche, and how you can get paid in the niche? What are the other business models?
Justin: Absolutely, yeah. So as I said, we think of it in terms of revenue streams. So I also do trial consulting for divorce attorneys, where I'm doing risk-reward, cost-benefit analysis, while that attorney's building their case theory. So if they want to make a separate property claim, or they want to put out an argument to the court that spousal support or alimony should be at a certain level, I'm doing the back office financial analysis through the attorney, effectively.
Michael: So I guess this is what we call more classic expert witness work...
Michael: I guess to that point, the attorney has his retainer and his agreement, and he's subcontracting to you for financial analysis, the way that you may delegate down to your internal office? But you get to be that guy because you've got that expertise and that specialization.
Justin: More or less. But I will also have a relationship with the client in that case. I have specifically designed my business at this point, because I've been doing it for so long, to do mostly trial consulting work. Because I can build such a great relationship with the attorney who provides referrals, as well as one-on-one with the client, so that they have a very high likelihood of transitioning into my post-divorce, wealth management business, too. Which is 90+% of our advisory business.
Michael: Okay, so that's actually a part of your model. It's not even just getting paid the hefty hourly fees for expert witness work in collaborative divorce cases. These people in trial divorce cases can convert into wealth management clients as well?
Justin: Yeah. At a very high percentage. Now, there are certain ways in which I work in a divorce rut where I will not take on a client afterwards. If I'm a neutral on a collaborative case, I will not take on either party after the divorce.
Michael: Because that's part of the requirements for neutrality in collaborative divorce?
Justin: Exactly. If there's even the appearance of conflict, then you have to assume there is, right? And then also if I'm an expert who's going to actually testify in court, I may still work with that party afterwards, but I definitely will not talk to them about it while their divorce is still pending.
Justin: Because if I stand to get a benefit from my testimony...
Michael: ...then you lose your credibility on the stand. And if you lose your credibility on the stand, you lose your referrals. Then your whole business model collapses.
Michael: And so, you've got to keep the credibility.
I know now more recently, you've had enough success in this that you've launched a network to teach advisors about this as well?
Michael: So maybe you can talk about that for a moment, and how that differs from just, like joining IDFA and getting a CDFA designation?
WellSpring Divorce Advisors: A Turnkey Financial Planning Platform For The Divorce Niche?
Justin: Really good question. So as I mentioned before, the IDFA provides the kind of baseline knowledge necessary to pass the exam to get your Certified Divorce Financial Analyst credential.
And then we step in and we provide a full turnkey business model to take your CDFA to the next level. So instead of saying, "What do I do now?" you've got a full turnkey business model from marketing, to tools and templates to actually do forensic accounting work, to working in collaborative divorce...
Michael: So very similar to what we do with XY Planning Network, right?
Michael: We bill ourselves the same way, a turnkey financial planning platform. We teach monthly retainers as a business model for serving young clients. So you're teaching divorce planning, how to leverage your CDFA designation into actual business...
Michael: ...and forming a niche around it. Do they work for you in that environment? Or as an advisor who's involved, I'm still my own independent firm, and I'm just joining your network and paying you a licensing fee? What does that structure actually look like?
Justin: We're actually doing both now. Originally, we were doing just licensing fees for independent advisors. But now we're actually also recruiting IARs to come in and be part of our larger firm. So far, though, everybody is a licensee of our intellectual property.
To license under our network, there's an upfront cost that's basically for training. We do a five-day in-person training.
Michael: Wow. That's pretty intense?
Justin: It is.
Michael: Five days...so after you do your CDFA, you do five days in person so you can learn how to actually start working in this divorce niche as a business?
Justin: Yeah, in fact, a CDFA is a prerequisite for being our licensee. You have to have already done it before you come see us.
Michael: I'd view this as similar to the CFP marks. It's hard to get a planning job until you've done your CFP. But getting the CFP doesn't mean you're immediately a successful planner, just because you have your CFP marks. You get your education, but then you have to learn how to execute the business, and get paid as a professional.
Justin: Yeah. Then you've got an operations manuals, marketing manuals, and everything else we provide. They now have to be 350 pages in length! But we train that stuff, rather than you having to sit down and read it and learn it that way.
Michael: What's the cost to be involved if you're in this network?
Justin: The front-end part of it is location-specific. So I'm not going to charge somebody in Providence, Rhode Island the same thing as I am going to in Los Angeles.
Michael: Okay. Because you're based out in L.A.?
Justin: I'm in San Diego. But it's just about the size of the market. And we kind of look at it like it's almost a franchise business. I don't want to have three franchises on the same corner of town. So our upfront cost is ranging between $5,000 and $12,500. That's for the training and initial licensing.
And then we have a fee schedule for ongoing services. If people want to use our Wellspring Divorce Advisors brand, which we suggest, then there's one type of fee. If they want to keep their own brand name, and simply license our IP, but not be on our website nor benefit from any of our marketing stuff...
Michael: ...so if they just want to do their own thing. They just want you to hand them a business model in a box, so they can do their thing...
Justin: ...yeah. So for example, we have two multi-billion dollar RIAs that are licensees. They want to use their own business name. They license our IP, they get trained, and they just pay us an ongoing licensing fee on a monthly basis going forward.
Michael: And that's a couple hundred dollars a month, or something like that, to be plugged in?
Justin: Yeah, if you want the full marketing stuff, it's going to be in the neighborhood of $1,200 to $1,500 per month, but that's for everything. If you wanted to just do the license for the IP, it would be between $500 and $1,000 per month.
Michael: Okay. Very reasonably priced for an entire niche in a box. And that's Wellspring...
Michael: Okay. I hope that helped some of our watchers and readers a little bit is understanding what does a divorce niche actually look like. What can you do? What's the opportunity?
Again, as a lot of you know just reading the blog, there's an opportunity as the whole profession is moving towards specializations, that we're seeing the growth of these things I call "turnkey financial planning platforms", or TFPPs, that teach you turnkey systems about how to work in niches. So XY Planning Network is one, Wellspring is one. Garret Planning Network, to me, was one of the originals, teaching people how to do hourly financial planning for middle class clients. I think you're going to see more and more of these going forward...
Justin: I think so, too.
Michael: ...all about helping us as advisors figure out how to build effectively in niches. And obviously, some niches will be so small that you're going to be the only one person in your niche.
And I guess the good news, if you can call it that, about specializing in divorce... two million people getting divorced every year means there's no lack of clients! Lots of people, lots of opportunity. So until we figure out how to not get divorced so often, you're not going to run out of clients anytime soon!
Justin: I'm not worried about the demographics or the market shrinking itself too quickly. At this stage, we don't really have any robo advisor version of getting a divorce...
Michael: Yeah, I would imagine not. Self-directed robo divorce probably wouldn't go very well.
Are You a Good Fit For The (Divorce) Niche You Choose?
Justin: We do have a couple of people that are trying to do that, but it's not really taken hold yet from what I understand. Divorce is a really high-touch business. If you don't have empathy, and you don't have the ability to sit across the table from somebody crying on a day-to-day basis, then divorce is not your niche. But I think you can learn empathy, and we help train people if they need that.
Michael: I guess that's a good point. If you're going to come in the divorce niche, be prepared; you actually have to deal with divorcees who are not always happy in their current circumstances...
Michael: ...but they have a need, which is what makes it a good niche business.
Justin: And the divorce niche has got a very high technical barrier to entry, too. Because you've got to understand your local jurisdiction of laws, you've got to understand accounting to a much greater extent than if you're a normal CFP business.
Michael: But you don't have to actually be an accountant or a CPA? You come with a financial advisor particular angle as a party to the collaborative divorce and that's part of the deal?
Justin: Right. So I'm a CFP, not a CPA. But I do full-scale forensic accounting, I testify in court, and I'm admitted as an expert.
You also don't have to be divorced in order to specialize in a divorce niche. People ask me that all the time.
Michael: Although you happen to have been divorced...
Justin: I happen to have been, yes.
Michael: So I guess you can speak to clients from experience as well?
Justin: Yes, exactly.
Michael: Awesome. Well, thank you for joining me. I hope this was helpful food for thought for everyone... a deeper look into the divorce niche, and a cool organization, IDFA, that's building around it. So thanks for joining us, everyone. Thank you, Justin, for hanging out...
Justin: Thanks for having me.
Michael: ...absolutely. Have a great day, everyone. Bye-bye.
So what do you think? Is divorce a good prospective niche for a financial advisor? Are you considering whether to join IDFA and pursue the CDFA designation? Please share your thoughts in the comments below!