This weeks’ podcast guest is Steve Wershing. Steve is a practice management and marketing consultant for financial advisors, with a particular focus on how to generate more referrals to grow your business.
But what's unique about Steve, though, is his approach to referral marketing, which starts with a simple statement: Stop. Asking. For. Referrals. And instead of asking for referrals, focus on how to make yourself more referraBLE in the first place - by having a clear niche. Because as Steve puts it, "a Niche is simply a need", and if you can fulfill a clear need, then people with that need will be referred to you... without even asking for it. Or viewed another way, Steve finds that the best way to get more referrals is not to hunt for them one at a time, but to plant the seeds for a large number of them, and then harvest them over time.
In this episode, Steve talks about the 6 different types of niches that financial advisors can form - including technical, educational, experiential, psychosocial, affinity, and values niches - with great examples of each. And based on his own experience as a financial advisor and former broker-dealer executive, Steve talks about how advisory firms can interview their clients and leverage a client advisory board to better understand what they're most valued for and then formulate a niche around that value over time. Because the reality is that, while it's not required, it's still usually easiest to build into a niche where you already have some initial connections or solution.
And be certain to listen to the end, where Steve talks about how to manage a niche practice over time, and why it's OK that your clients may eventually move on from or outgrow your niche - because even if they came and picked you in the first place for your niche, once they're working with you, they'll stay for the service and the relationship they have with you as their financial advisor.
So whether you’re struggling to figure out what niche you should go for, are looking for ideas on how to create a greater focus on your niche, or are simply looking to better understand how to get more referrals (without just asking for them more often), I hope you enjoy this latest episode of the Financial Advisor Success podcast!
What You’ll Learn In This Podcast Episode
- How and why you should reframe your efforts as farming referrals, as opposed to hunting for them. [2:34]
- How referring people to other experts will make you better at receiving referrals. [5:43]
- Why it’s crucial to post your asset minimums and fee schedule to generate more referrals in the first place. [8:42]
- What the best niche advisors do make themselves more referable and win the most clients that are passed on from centers of influence. [14:28]
- The difference between having a niche, and defining your target market. [16:20]
- The six niches that financial advisors can fit into, including; technical, educational, experiential, psycho-social, affinity, and values. [24:00]
- How Steve helps advisors develop a manifesto for their business that serves as a captivating marketing tool and elevator pitch. [34:41]
- Why the reason people will pick you as their advisor is often different than why they remain your client over the long term. [53:08]
- Steve’s background in the financial services industry and his path to consulting advisors on marketing their practices. [56:59]
Resources Featured In This Episode:
- Steve Wershing - The Client Driven Practice
- Stop Asking for Referrals: A Revolutionary New Strategy for Building a Financial Service Business that Sells Itself by Stephen Wershing
- Nerd’s Eye View: Fixing The Weakest Links In Your Referral Growth Strategy
- FAS Ep 021: Pivoting An Existing Advisory Firm To A Niche Serving Women In Transition with Evelyn Zohlen
- Inspired Financial – Evelyn Zohlen
- Scott DeGraffenried
- oXYgen Financial
- Nothing Down: How to Buy Real Estate with Little or No Money Down by Robert G. Allen
- Bob Veres
- Julie Littlechild - Anatomy of the Referral
Full Transcript: Stop Asking For Referrals And Improve Your Referrability Index Instead with Steve Wershing
Michael: Welcome, everyone. Welcome to the 26th episode of the Financial Advisor Success podcast. My guest on today's podcast is Steve Wershing. Steve is a practice management and marketing consultant for financial advisors, with a particular focus on how to generate more referrals to grow your business. But what's unique about Steve is his approach to referral marketing, which starts with a simple statement "stop asking for referrals." And instead of asking for referrals, focus on how you can make yourself more referable in the first place, by having a clear niche. Because, as Steve puts it, a niche is simply a need and if you can fulfill a clear need then people with that need will be referred to you without even asking for it.
In this episode, Steve talks about the six types of niches that financial advisors can form, including technical, educational, experiential, psychosocial, affinity and values niches, with great examples of each. And based on his own experiences, a former financial advisor, and broker-dealer executive, Steve talks about how advisory firms can interview their clients and leverage a client advisory board to better understand what they're really most valued for, and then formulate a niche around that value over time. Because the reality is that, while it's not required, it's still usually easiest to build into a niche where you already have some initial connection or solution in the first place.
And be certain to listen to the end, where Steve talks about how to manage a niche practice over time, and why it's okay that your clients may eventually move on from or outgrow your niche, because even if they came and picked you in the first place for your niche, once they're working with you, they'll usually stay for the service and the relationship they have with you as their financial advisor. And so with that introduction, I hope you enjoy this episode of the Financial Advisor Success podcast with Steve Wershing.
Welcome, Steve Wershing, to the Financial Advisor Success podcast.
Steve: Michael, thank you so much for having me. And, you know, before we do anything, I should say I am loving your podcast. You are absolutely crushing it, my friend. But I have enjoyed every episode I've listened to.
Why You Should 'Farm' Referrals Rather Than 'Hunt' For Them [2:34]
Michael: Oh, thank you. And likewise for yours. I mean, you've got a "Becoming Referable" podcast. So for those who're listening, who're looking for a new podcast, you can download Steve's. He does it jointly with Julie Littlechild, who we also had on previously talking frankly about a lot of the themes we're going to cover on the podcast here today, which is all these ideas of being…you know, getting referrals, being referable, how do you become more referable, which has a lot of themes around niches and specialization, and expertise. And I'm really excited to have you on. I mean, I've followed your work for I think at least five years now, or since you did your book back in 2012, which was provocatively, at least for our industry, provocatively titled "Stop Asking for Referrals." And it was all about how to get referrals by not asking for them.
Steve: Well, and let's…yeah, let's not even say "get" because that's still that old framing, right? It's all about attracting referrals. It's all about stimulating referrals as opposed to getting them. If we feel like we have to go get them, that's the fun, that's the concede, right? That's the fundamental thought error.
Michael: Yeah, like it's not…I'm not earning them, I have to hunt for them. I have to go get them. Like, take my spear and stab it and try to get them.
Steve: That's right, that's right, yeah. And that's…And I think it's a useful metaphor. You know, hunting versus farming. So, you know, if you feel like you have to go out and get them then, you know, you're acting in that hunter mentality, and it's the whole…you know, it goes back to the insurance industry and the broker-dealer world of, you know, eating what you kill and all that kind of stuff.
Michael: I like that framing, that hunting for referrals versus farming for referrals.
Steve: So I think of it as farming where, you know, the farmer knows if he distributes seed across the field, and if he cares for the field and nurtures it and waters it, he can have a really close approximation of what it's going to yield over the course of the year, but he never obsesses about any individual seed. So, you know, it's…so it's all…it's a matter of planting seeds. And if you plant enough seeds and take care of them in the right way, then you can estimate what kind of a yield you're going to get.
Michael: And it is an interesting contrast, right? Because…I mean, I love this framing, "the farmer plants lots of seeds." And you don't necessarily focus on any one seed. I don't know which seed is going to be the one that grows, but I know that if I, you know, till the soil and plant the seeds and water them like something is going to bloom there. And it's a good contrast to hunting, because like if…you know if I go on a hunt, it's like once I've got my eye on the prey, like I'm not looking at anything else but hunting that one thing that I'm pursuing and bringing it down. And you can even tunnel-vision on it sometimes. But it's such an interesting contrast between, are you trying to find the one thing and get it in your sights and bring it down, or are you trying to just till the soil and plant the seeds, and then let the crops bloom on their own?
Steve: And then, do you want the people that get referred to you to feel like prey or do you want them to feel nurtured and cared for so that they can grow?
How Referring Other Experts Will Make You Better At Receiving Referrals [5:43]
Michael: Well, and I think that's one of the interesting contrast to it, because, like, I look at this from my perspectives. I end out coming at referrals kind of literally from both directions. So I get referrals, I get referrals for our advisory firm. I have business development responsibility so that's part of what I do. So, I mean, I've lived the go to get or bring in, or attract, or earn more referrals, but I also give a lot of referrals. Just the size of the Nerd's Eye View blog now, you know, advisors contact me all the time looking for solutions, you know, technology tools, vendors, consultants. And I get a lot of consumers that come to the blog. I mean, we develop a lot of business off of the blog, but there's also a lot of people who get in touch, who just love your stuff, can't work with you, only one advisor in my area and not my area. We have some virtual clients but not everybody wants to work that way.
And so I end out handing out a lot of referrals to other advisors that I know for our clients who have a particular problem, or like some specialized issue, or they're in a particular area and they're looking for a solution. And so I go through that process of what's it like being the referrer trying to send business to advisors? And it's a really fascinating framing from the referrer side about how hard it is to send business to a lot of advisors.
Steve: Well and why do you do that? Why do you tell people about other advisors or about…
Michael: Well, because the advisor begged me for referrals, of course.
Steve: Yeah, right. Yeah, I know. Yeah.
Michael: No, all right, like, because someone contacted me and I want to help them. And I like to pay it forward, and I know things are likely going to come from it. But, like, people ask for help, I'm a helping person, and I want to help them, so I try to make sure they land somewhere reasonable.
Steve: Exactly. And so…you know, and the same thing is true if a friend is looking for a babysitter or a landscaping company, or a doctor, or, you know, whatever, and they ask you about one and you happen to know about one, you're going to introduce them, right? That's why…that's how referrals get made. It's not because you're a babysitter, you know, you've got this, you know, this determined, little, you know, high school kid who's coming out and then saying that, "Who else do you know who has little kids and, you know, needs to go out every Friday night?" You know, it's you're going to introduce that person to one of your friends who has kids because you want to help your friend out, right? And that's where it comes from. And so the whole idea, the whole construct around referral marketing is being clear about who it is you can help, and being clear about why you're the right choice to help them with that, and what special things there are about you or your process to make you the right choice for that kind of stuff, and then systematically communicating that to the world. That's where referrals come from.
Why It Is Crucial To Post Your Asset Minimums [8:42]
Michael: Well, and it's part of what drives me nuts as the referrer, because…You know, I know a lot of advisors, I know some better than others, I know some of the practices better than others, so I certainly get situations like, okay, I need to refer an advisor out in Phoenix. Okay, I know a few in Phoenix but I don't know the details of their practice. I don't quite know what the fee schedule is, I don't know what their minimums are. So, you know, someone contacts me and says, "Hey, I have $700,000 and I'm looking for an advisor in the area, and I really need a lot of financial planning assistance." Of course, I have to go find a firm for them that does investment management and financial planning and will take a $700,000 client. And so when I go to someone's firm and there's no specificity about what they do, and they don't post their minimums, and I know they have minimums but they don't post their minimums, and many don't even post their fee schedule or how they charge clients, I have no way to send them a referral because the…
And I think this is one of the things that so many advisors forget when they're looking at their marketing materials, right? I'm trying to make a referral to you and, you know, candidly, I want to help, first and foremost, the person who asked me for a referral, and second, I don't want to look like an idiot. Which means the last thing I possibly want to do is give someone a referral to an advisor who says no because that's embarrassing for the person and that's embarrassing for me. And so I won't make a referral to anyone that doesn't actually show on their website what their minimums are. If I'm pretty sure you have a minimum and you don't put it on your website, I will not send you a referral, because I don't want to create the awkwardness and the embarrassment of referring someone out to a situation where they get told no. It reflects badly on them, it reflects badly on me. I'm trying to help them. I'm not trying to make them feel poor because their entire life savings doesn't merit the goodness of the person I'm referring to. And, like, I'm not trying to be negative about helping minimums, it's a very good business practice, but when you're not clear about them you make…you create anxiety for referrers.
Steve: Now, you're somebody who doesn't know that advisor trying to help them out, but it's even worse because I hear that kind of thing from clients in advisory boards. I hear…You know, sometimes we'll talk about, "Well, you know, how do…tell us about how you tell friends about us and, you know, what would help you talk about us more easily," and that kind stuff. And some of the things that we hear are, "Oh, well I had a friend but I didn't send him over because I didn't know if you'd take him." These are some of the best clients of the advisor. And so if you're not clear about who you're looking for and what your criteria are, it's not just the Michael Kitces of the world that are hamstrung in trying to give you referrals, your own clients can't refer you well.
Michael: I'm curious how you do navigate that because there's an interesting distinction to me that my challenge for a lot of the folks that I'm trying to refer, they are often forthcoming about their financial situation. Because, frankly, a lot of the time, by the time they contact me, they've been looking for an advisor for a while and it hasn't gone very well, that's what they're asking me. So, like, "Look, here's what I'm looking for, here's my financial situation, here's my assets," which, you know, I always know, any time someone tells me, "I'm looking for an advisor and here's my assets," it's because they've already been rejected by someone for their assets, because that's the primary reason they volunteer it in an email. So they tend to be very forthcoming about their financial information. So I want to make you get a referral and I'm not going to refer to someone that doesn't put their minimums out there because I don't want to put this person into another bad situation that they're trying to come out from.
But it strikes me, it's even harder in the client's peer-to-peer context, where it's like I work with a financial advisor, my neighbor says he needs help, I don't know if my neighbor has assets. I mean, even if you're clear to me about what the minimums are, you know, as the client, I know I'm at your minimums because I went through this, and I've got the money, and I work with you, and you took me. Like, I know what kind of house my neighbor lives in because it's the one next to mine, but I have no idea what my neighbor's financial assets and means are. And there's all sorts of awkward social stuff, like real-world social awkwardness that comes from like, "Well, you should check out my advisor, he works with anyone with a million bucks," which is like a nice smart way of saying, "I've got a million dollars, I wonder if you do, too," right? And money is the great taboo, we don't like talking about that. So how do you set up those kinds of referral conversations for clients when you've got minimums and they don't necessarily even know if the person they're referring meets the minimum?
Steve: There is a difference between what's unique about your value and what makes you particularly good with certain kinds of clients, and the criteria that you have for accepting clients. So those are two different things. And so that's why I encourage advisors not to talk about necessarily account minimums and those kinds of things, but to talk about, "Who are the kinds of people that we can best help? What are the kinds of challenges we are best suited to take care of? You know, what's the experience that we've created that is designed specifically for a particular kind of client?" And, you know, because we don't talk about account minimum, we don't talk about wealth, we don't talk about how much we have. And so, even having that as an explicit requirement is not necessarily helpful in terms of encouraging people to refer folks to you.
How The Best Niche Advisors Make Themselves More Referable To Centers Of Influence [14:28]
Michael: So the idea is, like, if I specialize in divorcees, I just let everybody know, including my clients, that I specialize in divorcees. I just let you refer in any divorcee that you've got, and then when the divorcee comes to me then I kind of have the conversation of, "Well, here's how I typically work with clients, and here's how I charge," and we find out at that stage, rather than in the initial referral stage?
Steve: Yeah. And, you know, the value, most of the really unique value, the thing that the clients find most valuable about working with their advisors is typically not the money management part, it's typically something involved in the planning or some other aspect of the experience. I'm not a real big fan of account minimums to start with, so yeah. And then we're seeing some of the challenges come up with a lot of advisors. You know, let's say that, you know, you're an advisor who works with doctors or with entrepreneurs, or with…you know, with a lot of these kinds of categories, you want to catch them when they are going to be a good client, not when they have become a good client., because once they have become a good client, they're probably working with somebody else. You want to catch the doctors when they're young. You want to catch the entrepreneurs before they go public. You know you want to catch those people early on.
And if you have an account minimum, that's potentially a big obstacle. I have no trouble with a fee minimum. So you might say, "Our minimum fee is $10,000 a year, and if you have assets with us, we can use those to offset that fee. But if you don't have those yet, we can still work with you, it's just this is $2,500 a quarter," or however you want to structure it. But, again, if…or if you can provide some kind of an alternative. "So listen, if you've got somebody in this kind of a situation and they come to us, we'll figure out, if we can't help them, we will line them up with somebody who can." And that takes a little bit of the account minimum pressure off as well.
The Difference Between A Niche And Target Market [16:20]
Michael: That's frankly the angle that struck me as well. We had Evelyn Zohlen on the podcast a couple of weeks ago, and I know you guys have had her on "Becoming Referable" as well. You know, for us it was episode 21, if anyone wants to go back to listen, kitces.com/21. So the interesting thing about Evelyn, so Evelyn has this niche around women in transition, so primarily divorcees and widows who are going through all the life changes that come with becoming a widow or becoming a divorcee. And, you know, she has not an asset minimum but a fee minimum, and she can mention, like, she's got a network of some other advisors and some other even attorneys that she knows, where if someone comes…if someone gets referred to her and isn't a good fit for her, she has a place that she's going to refer them to, which means, you know, A, just, it's a nice thing to do and kind of paying it forward, but B, as you say, it takes off some of that edge, that edginess, that anxiety about referring.
Because what that effectively means is, hey, if I know a woman in transition that's struggling with some of these issues in Southern California, I'm going to send them to Evelyn, no matter what, because I know that either Evelyn will work with them, or Evelyn will know where to send them, right? To kind of move them along. You know, like, "Hey, I'm sorry, I can't always get you right to the end destination first of all," but I'm not necessarily worried about sending someone to Evelyn, who then forwards the person onto another advisor, who's an even better fit, like by minimums or target market, or whatever it is. I just don't want to send a referral to someone and then have the referral come back to me and say, "So that didn't work out, got another one?" Because that's really awkward, right?
And, you know, when I'm trying to refer people because, frankly, as happy as I am to refer people along, I do have some other things to do. I can only have like, so much time to refer people out. Like, I'm happy to take a little bit of time to refer people along, but I don't really want this to keep boomeranging back to me, because I keep trying to send them to advisors who had minimums that weren't on their website, or problems with their servicing that they didn't make clear, and now I've got to…now, this has become my problem. Like, what was supposed to be a good deed referral has now become a problem I have to solve because someone else wasn't clear about who they serve and what they do.
Steve: And since you mention Evelyn, Evelyn is such a great example of where, I think, advisors should strive to get. You know, Evelyn gets 75% of her new clients through referrals from COIs. And a lot of advisors struggle with, "Well, I can never an accountant or an attorney to send me anybody." She gets most of them that way, and it's because she has created such a great niche that she can go to those folks and say, "Listen, we don't want all your clients, but if you have a woman in this situation, we are your firm." And she can back that up with a custom process, and a specific orientation and all of the other aspects of her niche that she's credible doing it and so COIs are like, "I get it. And if I want to take care of my client, then…and she's in this situation, then that's where she is going."
And, by the way, I should also clarify something before we go too much further because there's a lot of confusion around this. And I will admit I am as guilty as anybody of having done this until I started reading more about it, and learning about it, six months or a year ago. And that's that we conflate target with niche. And they're actually different things. So when most people…
Michael: So can you define those, or distinguish those for us?
Steve: So when most of us say "niche market," what we mean is target market. But the niche is…the target market is the group of people that you want to attract as clients. The niche is what you create to attract some portion of them. So a target is something that's real, it's people. And it might be a really big group, but might be a really narrow group, but it's a group of people that you can distinguish from other people on some kind of characteristic, or habit, or need or something like that. And the niche is made up, the niche is imaginary, the niche is what you create. And if it's a very wide target market, then you create a niche that is designed to attract a small proportion of them. If the target market is very narrow, then you create a niche that's designed to attract all of those folks.
But the best way I can explain it is if I were to ask you…because I know that you're, you know, an expert at women's fashion and retail, if I were to ask you about, you know, give me the name of a company that does really well attracting mass affluent women who are looking for fashion and shoes, what kinds of companies come to mind?
Michael: Oh, man, I have no idea. You do know I only own one shirt and I just wear over and over again.
Steve: Well, one of the companies that's at the top of most people's list is Nordstrom. They've got a rock solid reputation. They are legendary for customer service. In fact, there is a story that people tell about Nordstrom, which is certainly not true, but…and I suspect even some of the people who tell the story know it's not true, but it's so powerful a story, it's part of retailing legend, right? The person who's coming back into Nordstrom to return a set of snow tires, and they don't sell snow tires, but they took them back, no questions asked, right? Yeah, that never happened, but it's so powerful as a story, and Nordstrom lives up to that reputation in all of the things that they do sell, but the story lives on. So they have a very powerful niche in those mass affluent women who are looking for fashion and shoes.
You know who else does really well with that group is Amazon. The demographic of the median Prime subscriber is almost the same as the target market for Nordstrom. You know who else does really well with that population is Stitch Fix. Have you ever heard of Stitch Fix?
Michael: No. I don't even know what Stitch Fix is.
Steve: Have you ever heard of Trunk Club for Men?
Michael: Yes. Yes. I've heard of Trunk Club.
Steve: They will send you shirts of multiple colors until you tell them to stop. So if you ever sign up, you can just do that and they'll only send you…
Michael: Yeah, that's going to be a lot of returned shirts because I'm good with my blue.
Steve: Yeah, right. Exactly. But it's the same basic ideas. You subscribe and they hook you up with a personal designer, and you tell them what you like and what your measurements are, and, you know, they get a sense of who you are, and then they just send you a box of stuff, and you go through it, and whatever you like, you pay for it, and whatever you don't, you send back. And over the course of time, they gradually learn what you like more and more. And so the idea is that you'll buy more and more of the box.
But here's the thing. Three companies, same target market, radically different niches. So, Nordstrom, is I want to go in, I want to look at the rack, I want to pick things up, I want to try them on, I want to, you know, put things together, that kind of stuff. Amazon is, I want to sit in my yoga pants with a glass of wine at 10:00 at night and see what other people think about these things, and buy some of the things based, partly, on what kind of feedback they've gotten from the, you know, product and from the supplier. And Stitch Fix is I don't even want to see it, just send it to me, and if I like it, I'll keep it, and if not, I'll send it back. So that's the best way that I can explain the difference between target market and niche. The niche…you know, the niche of Nordstrom is very different than the niche of Amazon and the niche of Stitch Fix. They're all catering to specific needs and desires of their target population, but they're each attracting a different portion of that target population.
The Six Different Kinds Of Financial Advisor Niches [24:00]
Michael: Okay. That makes sense to me. So when I apply this in the advisor context, I guess, so we get down to like, okay, so my target market is delegators with at least a million dollars investable assets, because that defines a subset of people who have financial wherewithal to pay me and some money for me to manage, but then I can start niching that down in all sorts of ways because, at least a million dollars because you had a business liquidity event as an entrepreneur is very different than a million dollars because that's the life insurance proceeds of your recently deceased husband, which is different than a million dollars because that's the lump sum of the pension that you've been accumulating for 37 years at one company.
Steve: Yeah. And that's where we start to get into the different kinds of niches that there are. So, you know, in the presentation that I do about this, we talk about six kinds of niches. We talk about technical, educational, experience, psychosocial, affinity, and values.
Michael: And those are all different, like, types of niches, groupings of niches?
Steve: Yeah. They're type of experience that you can create, or they're a different basis on which you can establish a relationship.
Michael: So can you explain these categories? Technical, education, experience, psychosocial, affinity, and values.
Steve: Right. A technical niche is where you have a particular skill or expertise that separates you from other advisors. On the simplest level, planning firms that do taxes and have a CPA on staff have a technical niche compared to advisors who don't. But they can go well beyond that. So if you're dealing with senior-level executives, part of your niche may be expertise in stock options.
Michael: And so, you know, Ed Slott, the IRA guy, that's his niche. He's got a technical niche on IRA. So, like, these are generally…so expertise specialization-oriented? Is that kind of how they come out in practice?
Steve: That's right. So Jonathan Lachowitz, who owns White Lighthouse Advisors, has an expertise in cross-border planning, and so his target market is expatriate American executives. So he drafts estate plans for people who are living and working overseas. And it's an incredibly technical, complex niche to create because you have to have an enormous amount of technical expertise to do it successfully. So that's a great example of a technical niche.
Michael: Sure. Okay. So I get that. And seeking that out is pretty straightforward at that point, where, like, "I am a cross-border executive that needs to figure out my estate plan." Like, "Oh, there is a guy that just does that? Awesome."
Steve: Exactly. Well, you know, so…And he was interviewed for the Journal of Financial Planning a couple of years ago and he posed the scenario of an American executive living and working in France, married to an Italian woman. You know, he can say, "If you are an expatriate American executive, then there are things you need to know, and I'm the guy who knows them." And so that's a compelling niche value proposition.
Michael: And, I mean, if that's my problem, that would certainly be an anxiety point for me in just figuring out how I can find an advisor who does that.
Steve: Yeah. So it's an example of a very narrow target market and a niche that's designed to take in pretty much everybody in that target market. Not that he will get everybody, but he's marketing to everybody.
As an alternative, you have, like, an experience niche like the one that's provided by…I'm going to go back a ways because they've changed their image a little bit, but I'm going to go back to old days of oXYGen Financial in Atlanta. Kile and Ted created a firm that was for, it'll be near and dear to your heart, X, and Y Gen investors. And the idea is that they are not looking for the private banking experience. They're not looking for the mahogany state pinstripe, you know, kind of experience, they're looking for something that's more fun. They locate themselves in retail storefronts as opposed to big office buildings, and they have a Wii in the lobby so that you can…you know you or your teenage kid can play, you know, video games while you're waiting for your plan.
And they used to have, like, these funny videos of themselves posted on their website, and that sort of thing. So, you know, the message was, "This is not your dad's private bank." And this, too, is a great example of the difference between niche and target, because they designed something for that target market that was designed to attract some portion of them. They knew they weren't going to get all X, Y investors, and they were fine that because the market is big enough that they can get a small portion of them and do very well.
But what ended up happening was…I sat on a panel with Kile a few years ago, and he started talking about their experience was, they started getting calls from boomers, who were saying, "Hey, you know, I know that you're, you know, focused on…" Because they're in Georgia, right? So, "I know that you're focused on, you know, the investors in the X, Y Generation, but would you work with me? I've got this rollover event."
Michael: "I want what you do too."
Steve: "I want some of that too. I'll have what she's having," right? And so they created a niche designed for a particular target market, but they end up attracting people outside the target market to the niche, because it's a niche that is not exclusive to that target market, it's just designed for that target market, but, you know.
Michael: That's an interesting way to frame it, right? So nominally, there was all this discussion in the early years that robo-advisors were created to serve this particular niche of millennials, but what they really ended out with, or what their solution appealed to was a much broader target market of just people that want to actually use digital tools. And it turns out digital tools is not restricted to just the target market millennials, there are affluent baby boomers who like technology too, and started putting large dollar amounts of assets over to the robo-advisor platform. So they didn't fit the original, I guess, targeting, or they didn't fit the original…I guess they didn't fit the original target, but it turned out the niche was broader than just the millennial target.
Steve: Right, exactly, exactly. So you design it for a target market and you cater it to the target market, but you may very well end up attracting people outside that target market who are attracted to the niche. And so what you want to be true to is not necessarily the target market, what you want to be true to is the niche, because that's what separates you. So if there are…if you've created a niche, that "we're a fun firm to work with," and you find this set of XY clients who are not interested in that, they would…they really…they want something more estate, or they're…you know, they don't want to buy into some portion of that, then you don't change your niche to cater to those folks, you know, you want to stay true to the niche and work on, you know, enhancing the people who respond to that niche in ways that make them want you more so that you attract more people like that, whether they're in the target or not.
Michael: So how would you characterize the oXYGen's niche then? I mean, they said they were setting out with this thing of, "We want to create a financial planning offering that's appropriate for Gen X and Gen Y investors," which is one kind of niche targeting, but then they sort of ended out with something else. Like, I'm just curious, in your six types of niches, how would you categorize them? Or maybe even how did you start, what did they end out? They're an experience niche?
Steve: Yeah. They're an experience niche. So an experience niche is you're creating an experience that people are looking for. So the experience how fast you move people along in a process so that if they're not really familiar with some of the stuff, they can handle it, you're not going to overwhelm them. The experience could be…remote technology could be part of the experience. So we're going to work with you in a way. So if you're a doctor, if you're a busy executive, if you're in a city that has horrendous traffic, we're going to create the…or if you're a snowbird, we're…and spend half of your time in Massachusetts and half of your year in Florida, we're going to create an experience for you where you can interface effectively with your advisor without necessarily having to come into the office. You're welcome to come in whenever you want to, but we've got this set of tools that's going to enable you to interact with us without affecting your lifestyle.
Michael: So what about some of these other categories? I get technical and I get experience, so what about some of the others here? Education, psychosocial.
Steve: So we've got…So we were talking about Evelyn Zohlen before. Evelyn…Inspired Financial is a great example of a psychosocial niche. A psychosocial niche is one where you're dealing with clients who have more to deal with than just the financial decisions they have to make. They're grappling with something psychological at the same time. So typically, this would be like divorcees and widows. There could be other kinds of folks, but those are the most obvious examples. And those are two of Evelyn's target clients.
And so when she created…They have a process called Guided Discovery. And she looked at different programs out there for people who have had big changes in their lives, or have…suddenly have to deal with issues that they hadn't…didn't have to deal with before. And she drew inspiration and ideas from those…She realized that women in those situations have a really strong desire to get their story out, to get their story heard. They need somebody to listen to them, and they relate well to stories. And so she gave her advisors, she gave the people on her staff training in storytelling. And all of that is to create this experience of Guided Discovery. They can address the needs that…the things they're trying to work through while they're trying to figure out the right financial decisions to make at the same time.
I work with, you know, a number of advisors who work with divorcing women, and one of the things that I hear fairly frequently from them is, "I can't just lay out everything and ask for a decision because they're overwhelmed. We need to work through this. We need to let them talk it out a little bit. We need to give them a little bit at a time, and then they get to a point where now they can engage the rest of their brain, and now they can make the decision. But it takes a little while to get up to that point." That's a psychosocial niche.
Michael: Whereas on the technical end, it's like, "No, no. I'm living in France and have my entire life, like, explain to me what to do with my estate planning."
Steve: And, you know, and I run, you know, I run European operations for this Fortune 100 company and I'm used to making a zillion decisions. So bring it on. Just tell me what I need to do.
How Steve Helps Advisors Develop A Manifesto For Their Business [34:41]
Michael: Okay. So it makes sense. I mean, you can start to see how the…just the entire way that you would deliver the services begins to shift. So what about some of the others? Education and affinity, can you frame this for us well?
Steve: An education niche is a little bit like a psychosocial niche, except they're not necessarily dealing with something psychological, but, you know, they have to start making decisions in an area where they're not oriented to yet. And so you need to sort of train them to bring them up to speed so that, "Okay, now here's my recommendation, and what do you want to do?"
And one of my favorite examples is an advisor I work with in Austin, Texas, whose target market is young tech professionals. And now, young tech professionals are people who may only be out of school for a few years but they're making good money. But they really haven't had a lot of life experience yet, and so…you know, I mean, it amazes me, like a lot of your audience, I'm sure, that you can go all the way through and get a graduate degree without ever…without anybody ever sitting you down and saying, "Here's how you write a check, here's how you balance your checkbook." And so these folks get out and they go to work for these companies, and they're making, you know, six-figures, you know, a few…a couple of years out of college. And do you have any idea how much beer you can buy for $100,000 a year?
Michael: When you were used to living like a poor college student, like, that…the money from that first job goes so far.
Steve: That's right. So what do those folks need? Well, they need to understand about budgeting and dollar-cost averaging, and asset allocation, and that kind of…So one approach to it would be, "Come in and attend our six-week class on basic financial planning principles, and we'll teach you all about budgeting, and credit management, and dollar-cost averaging, and asset allocation." And, you know, how many people are going to sign up for that? Well, maybe some of them would, but these are people who just got out of 13 years of school, they don't really want to go back.
And I would caution any advisor, because I hear a lot of them say this is, "Our difference is we educate our clients." Now, not all clients are going to be like me, you know, because I'm kind of, you know, snarky and from New Jersey, and, you know. But just when somebody says that to me, it's like, "No, thanks," you know, because I'm not fixing to get myself educated. If I hire an advisor, I want to be advised, and that might mean you need to teach me a few things that are your specialty, they're not mine, but I don't want to be educated. So we worked with this advisor and said, "Well, what would they respond to? What would attract them to this process?" And what we came up with was freedom.
Michael: Because at the end of the day I get educated so that I…you know, I've got a level of freedom of…
Steve: These are people who they're only living on their own for a few years. They're done, for now, at least being educated, they don't want to sit in a classroom anymore, but they're in an industry where things can change in a heartbeat. And they know they're making good money and they want to keep making good money, and that they know that any day, some kind of a disruption can come along and they can be out of a job, or their company can burn through their venture capital and they could be out of a job. And so they're beholding to their employer because they don't have any savings yet, and they're…And so what…But if we can show them how to attain their freedom, that, they might respond to.
And so we put together a freedom manifesto for young tech professionals. What I taught the advisor how to say, or what to say, was when somebody…when he's, you know, at a barbecue joint and somebody says, "Hey, what do you do?" He can say, "I work with young tech professionals in the Austin area showing them how to get financial freedom by attaining their first million and beyond." And so we've got…
Michael: Well, I would feel pretty good I'm a Austin tech professional that wants…like, "I want my first million."
Steve: In fact, he stopped his coaching program in the middle of the system, you know, before we were done because he was like, "Steve, I just say that to people and I've got as many conversations as I want, thank you. We're all set, we're all done." I'm like, "That's great, congratulations." Because they respond to that. So we created a manifesto. Now, what's in the manifesto? Well, you know, it's budgeting and credit management, and, you know, dollar-cost averaging and others, all those stuff that you…But instead of presenting it like education, we presented it like, "Here's what you need to know to get your freedom."
Michael: Right. It's one thing to say like, "Hey, come to our financial education class, you'll learn about stocks and bonds, and credit cards," which doesn't feel like a cool thing to do with your Saturday afternoon. But like, "Come to our financial freedom class to learn how to get to your first million and beyond."
Steve: Not even a class. It's the, "Here's the guide, here's the manifesto. You read that, if that makes sense to you, let's start in our process." And what they do is they provide the education as they're going through the financial planning process. And so they don't sit them down in a class and do it, but each step…So implementing the process may take longer than a lot of other financial planning processes, but each step of the way, they're giving them the exercise and they're giving them the education that they need to understand what it is, and so then they can make the decisions. "You know, first, I've got to clear off my student debt, you know, and then I've got to make sure I've got my cash flow in line. And now I can start putting the money away, and first into my 401(k), and then into things after that." So it's a population that needs an education, but we're presenting it in a different way. But we know that what we're delivering is not only the financial advice but the satisfaction of that education need that they have, even if they don't realize it or want to admit to it.
Michael: So what about the last two niches, affinity, and values?
Steve: Yeah, the affinity one is really easy to explain. The affinity niche is what the all-time brokers and insurance people used to do, by getting clients on the golf course, and on the tennis course, and at the yacht club. The affinity niche is, "Hey, I don't quite understand what you all do, but you're in my tribe, and I trust you, so I'll work with you."
Michael: Okay. And so this is…I guess this is also the classic like, "I'm very active in my church or religious group, so I'm going to work with other people in my religious group." I guess even in my community, right? Like, if we're in a small town and I'm the go-to person in a small town, like, "You just work with me because we work here in this small town together." There's not really much of any other vetting off process necessarily. Just we have the shared affinity of being in the town, and that's enough.
Steve: Okay. Yeah. That's basically it, that's right.
Michael: And then what about values?
Steve: And values is…Actually, I should say the affinity does apply to a lot of those ones you were talking about, but the church group is more of the values niche. So the values niche is, "You have the same moral code as I do, and therefore I trust you, and therefore I'll work with you." The best example, the example I love to give is Rick Kagawa, who is a financial advisor in California. Who when he's not doing financial services, one of his major passions is mentoring young men through Boy Scouts of America. And so when they asked him to do a presentation on the fiduciary standard, he showed up in his Boy Scout uniform. And he got up in front of the class and he stuck three fingers in the air and he said, "On my honor, I will do my best to do my duty to God and country…" And as he starts doing this, some guy in the audience stands up as well. That guy was Dave Yeske. You know Dave. Why do you suppose he stood up? Because he's an Eagle, he's an Eagle. And when you're an Eagle, you're an Eagle for life. And so he stood up and said it with him. "To be of service to people at all times. You know, to keep myself…" I was not a Boy Scout, so I have to remember this.
Michael: I didn't get nearly as far as Eagle Boy Scouts. I'll confess you got all the parts I suppose don't remember.
Steve: Yeah, mentally awake, physically strong and morally straight, I think it is. Anyway. You know, people who know him…you know, people who know him through scouting know that that's not just something he does at work. You know, one of the things that, as we gradually really internalize the fiduciary standard, we'll get there, but for a lot of people, you know, it's perceived, anyway, that that's what you do at work. For Rick, it's not what he does at work, it's who he is. And so it doesn't matter whether it's investments or financial planning, or, you know, picking your kid up at the end of the day or whatever it is, that that's his moral code. And so people who want to make sure that they're going to get treated right and know him from boy scouting will trust him from that. And that's a values niche.
One of my clients who…For an advisory board, you know, we always ask the advisory board, "You know, what was it that…why did you select this advisor over other ones?" And, you know, probably 60% of the bunch said, "We're part of his church. We've seen what he does there, and because of that, we trust him. His Christian values are really important to us."
Michael: So I get the framing of the six types of niches, you know, the nerdy me actually loves this framework of just ways to categorize and think about, and talk about different types of niches and different ways that advisors can appeal to certain target markets. But now I feel like we get to the, like, the real challenge for most of us as advisors, which is how do you pick one? Like, "Is one of these the best? Because I really just want you to tell me what the best one is." But for more practical level, like, how do you pick? How do you choose?
Steve: The first thing you do is go through your client base. Chances are you've got the beginnings of one there already. And the…one of the best things you can do is get client feedback. And you ask them some of those value questions. "You know, why did you choose me over other advisors? Of all the things I do for you and how I do them, what's most valuable to you? If you were going to…how would you describe what's different about me from other advisors?" You know, find out from your clients.
Michael: So, like, I survey my clients, I focus group my clients? Like, how do I…I just start having some conversations with them? How would I try to tease this out?
Steve: So there are three different ways. You can do a survey, but that's not going to tell you a lot of this stuff because this stuff is really qualitative. You can do individual interviews. One thing that you can do is, at the beginning of a review meeting or something like that, you can say, "Hey, listen, you know, we're trying to get some clarification over, you know, what really makes us different, what's most valuable, so before we get into your portfolio, could we just take like five minutes and let me ask you a couple of questions?" And talk about that for a few minutes. There are some advisors who will schedule a whole separate meeting for this kind of thing. So they'll schedule a time when the client comes in and they're not talking about their financial planning or their portfolio, they're going to talk about the service they get from the advisor and how it can be improved.
Michael: And so, like, is that still niching? I mean, I kind of feel like if I'm asking my clients, "Hey, just how do I improve my service? How do I get better at what I do?" That's just sort of, well as a business owner I always want to get better. How I do…like, how do you distinguish just firms that want client's feedback to do better things, because we all kind of move forward in our businesses, versus a niching discussion?
Steve: Well, a lot of the art in this is how you construct the question. So that's why I would say, you know, "What we can do better?" is you're not going to get many good answers to that because people are going to say, "Oh, nothing. It's fine." That's why you ask, "Of all the things I do for you and how I do them, what's most valuable to you?" And they will say, "Well, I really trust you." And you can't be good with that, you have to drill down into it. And so…
Michael: So like, "Why do you trust me?"
Steve: Well that's it. So when I'm doing advisory boards…and that's the other thing besides interviews is doing…is pulling together an advisory board. And this is what your third party facilitator can do for you, is they'll drill into questions like that. So invariably, somebody will say, "Well, it's really the trust. It's the trust I have in them that is the most valuable to me." And I'll say, "Well, I'm glad you brought that up because this is a particular challenge. Now, they don't…they can't deliver trust to you. They can't take a little bit of trust off the shelf, put into a box, wrap it up in a bow and hand it to you. Trust is something that happens because they did something the way they did it. So can you give me a story of one time when something happened in one of these meetings and you walked out saying, "You know, I really know I can trust this guy." What happened in that meeting, or what happened in that exchange? Or what was it that you called them that you needed to have done? Or, you know, what was it…" Then you can start getting the stuff that is the niche, then you can start getting the stuff that they do.
Michael: So how do I refine this? Just…I mean, if I've been doing this for any number of years, I mean, I feel like I'm going to have one of those ask 100 clients for the way you can do things better and you'll get 100 answers. Like, okay, well now I have 100 niche ideas but I'm still trying to figure out how to forecast or where I move forward and what I do with this. So how do I refine this?
Steve: Yeah, that's what starts, but then you want to look at, you know, what do you like doing? And what are some of the most significant experiences that you've had? You know, what are some of the most significant outcomes you've helped clients generate? And, you know, you start…so you combine what the clients find most valuable, and also what really turns you on, and what inspires you, and the stuff that you were talking about with Julie when you interviewed her on the podcast. You know, you combine those things together. And you also want to take a look at the kind of client that you want to work with and what are the needs and wants that they have that separate them from other folks?
Back when I wrote "Stop Asking for Referrals," you know, one of the things in that book is that a niche is a need. And, you know, what is it that they're looking for? What is it that you deliver to people that they don't get or that other advisors don't talk to them about? You know, it's you put all that stuff together when you start working on designing what your niche is going to be.
So there's…When we talk about significant events, there was an advisor, he was a young guy, he was working in his dad's advisory firm, and his dad had built the business on doing rollovers of senior executives from a very large company that had a large…it had its headquarters in that town. And so son comes in and they have a challenge. The employer is not really there anymore, they're not, you know, getting packages like they used to. And the thing is that the advisor was…you know, he was in his mid to upper 20s, but he looked like he was about 18, so he couldn't just stroll into a senior vice president's office and say, "I'm going to show you how to run your portfolio." Like, that just wasn't going to work.
So we were trying a bunch of different things and trying to figure out what it would be. And so I…and we weren't getting anywhere with it. And so I asked him, I said, "Okay, well, what would you say are the most significant experiences of your life?" And he said, "That's easy." And he told me about pitching in the College World Series for Clemson. And I said, "Okay." Well, I happen to know, from first-hand experience, that there are a lot of families who have athlete sons and daughters who are athletes in high school, who want that athletic experience to be a significant part of college. They know that they're not going to be pro, or they don't…you know, maybe they will, but they don't harbor any illusions, but they really want a high-level athletic experience to be part of college. And they will spend significant sums of money to prepare their kid to be able to do that.
I took my son, who was a baseball player, all up and down the East Coast playing in the World Wood Bat Association Championships and taking him to Jupiter, Florida, and North Carolina, and Pennsylvania, and, you know, all over the place, because he was a varsity baseball player in high school and wanted to play for a really good college team. So there's money in that.
And so what he did was he created a niche for families of high school athletes. And he would do the financial planning for them, certainly, and he would do their taxes, and he would do a lot of other things, but he also would show them how to position their kid to be seen by the right schools, and how to put together a video of the kid that you could send to coaches, and how to get the video in front of the coaches, and then how to negotiate with the financial aid people to get the best deal, and how you could work with the coach if they really wanted your kid to play on their team. You know, the coach will, you know, pardon the pun, go to bat for you with the admissions people, and with the financial aid people, and…So he created a sort of whole separate service around that. And as far as I know, he's the only person doing it, and he happened to be doing it in an area of the country that's really rich with that kind of stuff. You know, where they take baseball really seriously.
Michael: Well, and I think it's…that actually, I feel like it illustrates to me an interesting point as well that I find comes up with a lot of niche discussions, when I hear advisors saying, like, "Why a niche? Why do I need a niche?" And it's sort of the question of, well, I do comprehensive financial planning. I can help these people anyways, right? Like, the parents who have kids going to…you know, who are high schools athletes going to college do not have substantively different financial planning needs than any other parents of a child who's going to college soon, and you need to plan around college funding, and maybe they'll be some scholarships. Like…I mean, I can make the case that the planning stuff, and certainly the stuff they're going to invest in, and products they're going to buy and all the rest is not different. So what's the point of a niche, or why do I need a niche?
And, I guess, the…for a situation like that it's, "Well, I'm going to do a bunch of other things that has nothing to do with your portfolio but is part of the types of people I work with, and is meaningful and provides value." You're like, "My advisory fee covers your portfolio and your financial plan, and the fact that I'm going to help you position your son to get a better scholarship going to college?"
Steve: Yeah, it's the outcome. So you don't talk about your services, you talk about the outcomes. And advisors do that in sort of an awkward and crude way when they say, "You know, we provide peace of mind," you know, and those kinds of things. So they're promoting, not their financial planning services or their portfolio management services, but they're promoting what the outcome is. "You know, if you work with us, this is the kind of experience you have. If you work with us, we can solve this problem that other people can't solve. If you work with us, we'll work with you on these terms that other advisors won't work with you on." And so you talk about what the outcome is. And that's how to communicate the niche, and it's also the value of the niche.
Why The Reason People Pick You As Their Advisor Is Different Than Why They'll Remain Your Client [53:08]
Michael: And so once I create or set one of these, you know, I switch my practice to it, or…I guess particularly when I switch my practice to it, but maybe even when I'm starting from scratch, like, how focused do I have to be on it? Like, one of the other questions I forever hear for advisors that are struggling with this is, "I'm starting a practice, the first question is do I have to say no to the people who don't fit my niche?" And then, for all of us who have existing practices, it's, "Well, okay, what do I do with all the rest of my clients that don't fit this niche that I'm now moving myself towards, or the road that I'm going to go down?" I want to be more referable and I want to get more referrals from this, but I don't necessarily want to piss off all the clients I've already got, who've been working with me for a long time. Like, you know, I work with a lot of clients who don't have children that are about to go to college, and…or college athletes, and, like, what do I do? How do I do a niche? What do I do with all my existing clients or all the people who contact me, who don't fit the niche?
Steve: Well, that…I mean, that can be a tricky thing. Now, what I can tell you is that people get attracted to the niche, but then they stay for the service. So why people pick you is different than why they stay, in a lot of cases. So if you are focusing on people who look different than you do but you still have a good relationship and you are still happy with the relationship, you're not going to leave. You know, you're not necessarily going to alienate people because your marketing isn't aimed at them, if they're already working with you. Does that make sense?
So, you know if you continue to provide the great level of service that you've always provided to folks, it's unlikely that they're going to pick up and leave because now you're marketing to acquire new clients that don't look like them. However, we also now have numbers around that. So Julie Littlechild and I just finished a study for SEI about what makes somebody referable. And one of the questions that we asked was, "You know if you have a target market what's the proportion of your client base that that target represents?" And then we separated the group into categories after we got the data back, and the top 15%, what we call the highly referable firms, only 50% to 75% of those clients are in the target market. So there is still a substantial portion of the client bases even among the most highly referable firms that fit the target or ideal client description that they go out and promote.
Michael: Because they're getting people anyway, so they already had them and they don't shed them, and the reality is if the clients are happy with you, they tend to stick with you anyways. Which I guess also helps to address the question that comes up, certainly in the context of an advisor-client situation, like, "I help, you know, parents, who have college-bound high school athletes that are excelling in their sports. And I'll help position you around how to go through the college application process and maximize your scholarships." And they'll be incredibly relevant and valuable for those parents as their kids are getting ready to go to school?
And then their kid goes to school and it's like, "So, why do we still pay you?" Because, like, it's been five years, and the kid is already out of college now, and, like, you know, there's his niche that's run its course. And I guess the point is, no, not necessarily. If you're doing a good job servicing them, then at that point, I guess, they can't be your only value, but as long as that's part of your holistic value, they may come for the niche but they're going to stay for the service anyways.
Steve: Evelyn is a great example of that. Her niche is a guided discovery experience for women in transition. How long do you think they're in transition?
Michael: I'm not sure. You know if your niche is women in transition, at some point they've transitioned.
Steve: Exactly. They're done with the transition, but they stay because they love the relationship and they love the experience. So they come for the niche, but they stay for the service.
Steve's Background In The Financial Services Industry [56:59]
Michael: Can you talk just a little bit about just your background? Like, how have you come to these great revelations about all the bad and wrong ways that we do referrals and formulate niches, and so forth? So what was your background in the industry? I mean, have you just been doing consulting throughout, or you were doing other things for a while?
Steve: No, I actually…before, I…So I've been in financial services for 30 years. Before that, I was in investment real estate. So I was involved in it in a time where in my city, city properties were having a renaissance. They were appreciating at 14% a year and I was selling duplexes and triplexes, and fourplexes to individual investors as rental properties, or to owners who wanted to have a place to rent out. And so I was, you know, a couple of years into that and really getting started in it, and then the Congress passed the TRA of '86 and ended my career.
Michael: Oh, okay. So you had started this in the 1980, early '80s with the booming real estate investing and all the tax credits that made it really appealing to do some of that.
Steve: Back in the days of…What was his name? Robert…"Nothing Down." That was his…was his big book, "Nothing Down."
Michael: Oh, buying real estate with nothing down, because the tax credits will pay for it.
Steve: Right. Well, not tax credits necessarily, but back in the '80s, you could buy a piece of property and leverage yourself to the teeth and the appreciation, you would appreciate your way out of it.
Michael: Oh, fantastic. It sounds good. I like buying…I like getting free money with nothing down so that it appreciates at 14% a year.
Steve: So it was the days of nothing down, interest rates were coming down, and there were…and this is before the IRS divided income into different buckets, so you could offset salary with depreciation from your rental property. So, partly, city properties were getting more popular, and partly, they were being inflated because of the tax benefits of buying investment real estate. And so people were buying them like…You know, the city properties were appreciating at 14% a year. And because you could highly leverage them, you know, what you were really receiving was a large multiple of that. So if you put, you know, 5% or 10%, well, let's say 10% down on a property and it went up 10%, well, I mean, you've got a big magnifier effect out of that.
So I started doing it and then they passed the Tax Reform Act of '86, and I had people coming back to me trying to sell properties they bought two years before, and I'd say, "Listen, I'm happy to list it for you, but it's going to be 20% lower than what you bought it." And it was…yeah, it was just bad. I mean, the prices collapsed because, you know, all of sudden the tax benefits just evaporated overnight.
And so I started looking around for, you know something that, you know, gave me the opportunity to do that analysis and do that advising of people on that kind of stuff. And I answered an ad in the Wall Street Journal and found a financial planning firm that was…well, you know, it was a mutual fund company that sold insurance, and we did, you know, financial planning for free. But the advantage of that was that I got trained in financial planning from the get go. You know, yes, it was still I still only ate what I killed, but we were taking a financial planning approach to it.
Michael: You came in as an advisor and doing financial planning and getting paid for implementation, so kind of that typical model for a lot of what? Independent broker-dealers at the…well, independent broker-dealers, I guess, in particular, at the time were doing that as well. Some of the…
Steve: Yeah. It was a proprietary shop. We sold the in-house mutual funds. Thankfully, the in-house mutual funds were pretty good quality, so, you know, that wasn't too bad.
Michael: It's really nice when that actually works out that way.
Steve: Yeah, right. Exactly. And so I did that for a few years, and then I became a district manager, and then I became a division manager. And then I really started…you know, I really wanted to be able to do stuff outside of the family, and I also wanted to be able to get paid for the planning because they didn't…they weren't charging for planning. So I left and I went independent and started charging for financial planning. Hooked up with an independent broker-dealer, and did that for a couple of years. And I was with a broker-dealer that was based where I lived, and so I kept pestering the president of the broker-dealer, "Why don't we do this? Why don't we do that? Why don't we do this?" And so finally he just said, "Look, will you just come in here and do that because, you know, you won't get off my back, and they're really…they're okay ideas, so could you come in and do it?"
Michael: Like, "Were you kind of employed with the broker-dealer, since you keep telling us things to do with the broker-dealer?"
Steve: Exactly. So I moved in-house. And over the course of time, I did more and more work with advisors and less and less work with clients until I became the chief operating officer of that broker-dealer. And did that for a few years, and then I got recruited away to be president of a regional broker-dealer. And I did that for eight years. And then I left that, you know, tried to figure out whether I wanted to stay in the corporate channel or if I wanted to start my own thing. And, you know, I thought about it. And, I mean, I've done operations, and I've done compliance, and I've done all the different aspects, but the fun part was always helping advisors build their business. That was always the fun part for me. And marketing was always a lot of the fun part, so I thought, "Okay, well what could I do to help advisors build their businesses?" And I thought about a couple of sort of operational-type things.
And thank goodness for Bob Veres, who was a very good friend during those days, and said, "You know, well Steve, you know, you've got a skill set that if you…I think you should explore a little further because I think there are better things that you could do." And so I started doing research and sort of stumbled on the fact there was actually research about referral behavior, thanks to Julie. I mean, I'd read the "Economics of Loyalty" and a couple of other related studies and realized we had it all wrong.
Michael: Julie Littlechild's research on Anatomy of a Referral and all of that that she was working on a couple of years ago was actually part of your decision to transcend in this direction?
Steve: Yeah. The first thing I did when I started getting into this was client advisory boards because the guy who really broke open the financial advisor market for advisory boards happened to be a mentor of mine. And so when I left, I started looking…was looking for something to do on my own, I hooked up with Bruce and said, "Hey, can I work with you on some of this stuff?" And he said, "Sure." And so he helped train me and gave me some orientation to that. And then I ended up taking over the financial advisor vertical for him. And then eventually sort of went off on my own, because he was dealing with the huge national kind of corporations and I was dealing more with the local advisors.
And at the same time, I'm reading all this information that Julie was publishing, and that Scott Degraffenreid was publishing, and some, you know, other folks were doing. And so started looking into, "Okay, so what kinds of strategies would work if we have…" It was a little bit like Billy Beane and the Oakland days and Moneyball. There was a common wisdom. But when you look at it analytically, you find out that's all wrong. Even though it's a common wisdom, you know, not much of it really stands up to research or to scrutiny.
And so I started, you know, figuring…I started looking into talking to advisors and trying to figure out how we apply what Julie was uncovering in her research and applying that to real-world situations, and people who were …yeah, because there were always stories about lots of advisors who, you know, never asked for a referral and got lots of them. And so well, how could that possibly be if the common wisdom is right?
Michael: Right. You're always supposed to ask for them, so how does anybody get them by not asking for them? Something must be broken.
Steve: That's, yeah, right. It's just something is wrong with you. Yeah. Right, exactly. And so that's kind of how I got started down this path, that's where I came from.
Michael: Interesting. And so what does your business actually look like at this point? Are you still doing any advising or any independent broker-dealer executing, or are you just solely…I was going to say executoring, executiving, are you solely on the consulting side? Like, what is your business now?
Steve: So there are a couple of different aspects to the business. The main thing is The Client Driven Practice, which is we do advisor coaching, we have a four D niche process that we guide people through to help them…you know, the four Ds are discover, design, develop and declare. And those are the four concepts that you need to master to create and dominate a particular niche. And so we do that, we do advisory boards. We still do a lot of client advisory boards for companies all over the country.
Michael: Let me ask you first, on the coaching side, like, who…are there…is there a particular type of advisor you work with or things that you focus on? Is it specifically around all of this work on niching, or are you broader than that in what you coach on?
Steve: It's about marketing strategy, branding, and getting referrals. And so when we work on the messaging, so we don't do…we're considering some possibilities of where we might go with this because we get a lot of advisors who want us to implement. You know, we talk about, "Look, we'll set you up with the marketing strategy, we'll help you with your messaging, we'll do it at the high-level and teach you how to talk with people about what you do, and give you suggestions about what should be on your homepage and what should be in your…you know, what should be on your blog" and those kinds of things, but we don't execute on that stuff. And we have a lot of advisors that say, "Hey, can you just help me do this?"
So we're evaluating some of those possibilities, but right now, it's really just the marketing strategy kind of thing. So rebranding firms and giving them the high-level messaging, and translating that into how they would execute on that strategy. We're also, like I said, we're involved in the client feedback, which is an integral part of learning, of the discovery process, and so we do a lot of advisory boards for firms.
Michael: Okay. So if I actually want to launch a client advisory board and do a client advisory board, and I know we have a…well, we have an article that you did, actually, as a guest person on Nerd's Eye View last year, about, you know, some starting points for that as well. So we'll put that in the show notes if people are curious. But I guess if they want to really go deeper on client advisory boards, you do that work with them.
Steve: Yap. So we can do that. We have a coaching process that helps you construct the board and invite the right people to it, and then pull it off successfully. And then we'll facilitate the meeting. And then you get five deliverables that are…you know that…
Michael: So you really, like, you do the client advisory board process for them.
Steve: We're also working on coming out with a client advisory board kit so that you can…you know, something that's less expensive. If you know somebody who can facilitate it for you and you just want to do it, you know, we've got a guide that you can download off the website, but we're working on a more extensive kit that you can buy, that would do…you know, show you step by step soup to nuts how to do it. And then there's speaking and writing. So I've got "Stop Asking," we've got the new book that I'm working on about niches, about niche marketing. Working title for it is "Striking it Niche."
Michael: Striking it…Striking it Niche, because there's riches in niches.
Steve: That's right.
Michael: I heard that one recently. I loved it.
Steve: Riches and niches. That's right, exactly. I was thinking about "Niches be Crazy," but I didn't think that would fly.
Michael: Well, yeah. Well, so, again, so it's a very large advisor target market, and then there's a certain niche within them that may respond to that titling.
Steve: That's right. The twisted snarky, you know smart aleck kind of advisors. Anyway. So there's the writing. And then I also speak a lot. So I speak at company conferences and a lot of FPA Chapters and industry conferences, and…
Michael: So I know we overlap on a lot of our industry conferences where we're both speaking.
Steve: Oh, and then…and I should also…I should say I'm still licensed, so I'm a hybrid advisor, so I still have a broker-dealer affiliation, and I've got a number of advisors who work under me, and, you know, I don't have…I have maybe a dozen personal clients still, but, you know, I'm busy enough with the coaching and the traveling and stuff that I don't have a lot of personal ones, but I do work with 17 other advisors that are affiliated with my group.
Michael: Okay, okay. So you're kind of like an OSJ for 17 advisors or some structure like that. Interesting. So you get…you really do get a mix of seeing some clients working with advisors in your firm that are going through all this and then the writing and the speaking, and the consulting work.
Steve: Yeah. So, you know, it's…You know, and I think that helps, you know, because I've had the experience of having been a practitioner, of listening to people thinking, "That sounds really good but just I'm not sure that it's going to work," or, "Yeah, that used to work five years ago but it doesn't now." Well, you know, I'm still a CFP and I'm still in it to some extent. So, you know…and I don't know that I would never want to give that up, because I never want to be in a position of presenting something to a group of advisors and have them think, "Well, yeah that's really kind of out of date."
Michael: "Yeah. Nice theory, but have you ever actually sat across from a client?" It's like, "Oh, no, I have, and I still do." So what are you working on from here? Like, where does this go for you going forward?
Steve: Well, besides "Striking a Niche," I'll tell you that the thing that I'm most excited about is that we are…I was able to partner up with SEI on the development of an assessment tool for advisors, that should be coming out in the fall. So the idea is, you know, if you go to a big conference, if you go to, you know, BE or NAPFA or something like that, you know, you're probably going to sit through two, three, four, five breakout sessions on how to get more clients and how market, and how to get more referrals and things. And, you know, one of the big questions is always, "Okay, so which of these should I do?"
And the difficult part of that is that the honest answer is, "Well, it kind of depends," because every advisory firm is built different, they're at a different stage of their development, they present differently. And so the answer could be different for different ones. And wouldn't it be cool if there was some kind of a tool that you could answer some questions and it would say, "Okay, now I know who you are, and if you want to invest time or money in generating more clients, this right here is what you should be focusing on. This is the point of leverage. This is what's going to give you the biggest return on investment." But a different advisor, with a different-looking business, you know, might go in, answer the questions differently, and it would tell them something different. "Oh, this is what…you shouldn't work on that over there, you should work on this over here."
Michael: Because our businesses are at different stages and we have different blocking points.
Steve: Right. And so we are now building that tool that will be called the "Referability Index." You heard it here first. I don't think I've said it to…that word to anybody…you're the first, Michael, to hear it.
Michael: All right, the Referability Index. All right.
Steve: We are currently just about to roll out with the pilot. So we have 38 firms that we're going to be working with fairly intensively. So it's based on the research that we just did. I think I referred to it before. Julie and I did it, and SEI will be releasing that as a thought leadership piece probably late June, early July. And it'll be called "The Elements of Referability." And so you'll see that whitepaper come out. And then, shortly after that, we are going to be working in the alpha stage of the Index.
Michael: So the Index itself would be something where I can go…I guess as the name implies, like, I can go through and you'll answer questions about how my practice is structured and what I do, and you'll give me…you'll index me or score me about how referable I am and the things that I need to adjust to make myself more referable?
Steve: And you'll get this grid so that the score will be broken out across, you know, six, seven, eight different areas of your practice, and you know…So it'll be service mix and service model, and marketing plan, and social media, and web presence, and, you know, all these different things that affect your referability. So you'll be able to look at that and say, "Okay, I can see the point on the grid that I need to focus on the most." And so you'll be able to, you know, log in, subscribe to it, answer 45 or 50 questions and get your thing. And then, the intent at this point is that you'll still have access to that for 12 months once you subscribe to it. And so as you make changes in your business, you can log back in, change the answers and see what it does to the grid. So if you should still do stuff in that area, or if you should shift to a different area.
Michael: I'm sure you're making some progress, the progress is good.
Steve: So that will be…it will be exclusively available to advisors associated…who have SEI managing their assets for three months. The intent, anyway, unless they decide to, you know, negotiate for an extended period, would be that it will probably be available to everybody else the end of the year, beginning of next year.
Michael: All right, well very cool. We'll make sure we have at least some links out to Client Driven Practice and your website so that advisors can keep tabs on what you're working on. I guess, for someone who's listening to this months later by the time you hear it, we may already have Referability Index out and available to you.
Very cool. So as we come to the end here, I'm curious, as you look back on the path that you've gone down with this, like, so you talk about referrals and niches, did you end out building your own practices, your own business in this direction, or is this…like, did you go down this road and you're trying to teach it now, or is this one of those like, you went down that road and didn't do, and then looking back you're like, "I really wish I'd done it this way, because I can see it works for others, and now I'm going to do it going forward?"
Steve: Oh, yeah, my history is totally like, "Don't ever do this."You know, it's like the financial advisor's version of how to fail. I can't tell you how many times I've planted my face on the ground. You know, metaphorically, thankfully. Yeah. I wish I had known this stuff early on. And I will tell you, one of the things that is most irresistible is I…Who knows? In the next couple of years, I might actually, you know, work on building a new wealth management practice, because I'm just chomping at the bit. I wish I could put more of these things into practice. I do it with my own business because I'm pretty clear that, you know if what you need is…
Michael: You have a niche yourself at this point around, "The guy that works with advisory boards and niches, and all the marketing messaging around it." I mean, it strikes me, you have certainly built a niche around generating referrals with a niche.
Steve: That's right, yeah. It's a niche-niche. You know, it's so meta, you know. But I get people who come and say, "Hey, can you help me with, you know…I don't think our systems are quite right," or, "I'm not sure if we're servicing our clients in the best way," or, you know…And I refer those to other people because it's…that's not my expertise, it's not what I do. It's not my niche.
Michael: So you still have the temptation at some point.
Steve: I still have a huge temptation to go out and build a specialized practice.
Michael: What does the typical day or even week look like for you at this point between consulting work and speaking, and some clients, and OSJ for 17 advisors? Like, that's a lot of stuff.
Steve: It is a lot of stuff. It really…I mean, there's…it changes…one of the fun things is it really…it changes…it can change pretty dramatically from week to week. In May I was on the road almost the whole month because that's a popular time of year for people to do their advisory boards, and it's a popular year for conferences. So, I mean, I think that I had three speaking gigs and nine advisory boards in May. Something…or maybe eight advisory boards, but it was a lot.
Michael: Yeah, that's a lot of advisory boards.
Steve: So that was, you know, a lot of time on the road and kind of stuff. And then, you know, the last week or so has been back here. A lot of it has been writing, because we're finishing up that whitepaper. But there have been a few client things. You know, this is…you know, your audience can relate this. You know, one of my clients has been, you know, a friend for, you know, a long, long time. He and I met when we were EMTs, you know, 100 years ago. I think that's in your background too, isn't it?
Michael: Yap. Yeah, I was an EMT in college, back when I thought I was going to go into medicine before I decided I didn't want to disappear for the entire decade of my 20s for medical school. We did…you know, the episode for me telling my story was episode 20, so if people want to go back and listen, kitces.com/20, you know, talking about that. I was a psych major, theater minor, pre-med student. And the only thing I finished out in college was figuring out by the end of college that I didn't want to do psychology, theater or medicine. So I landed very randomly in financial services after that.
Steve: That's great. And so I've been listening to Financial Finesse one. That's the one I've currently got.
Michael: Liz Davidson.
Steve: Yeah. So that's the one that's in Stitcher now. So who did you get to interview you? Because I remember you were talking with Angie about…was it Angie or somebody? About who should interview you. Who did you get to interview you for your interview?
Michael: So Liz Davidson, I got to do, was episode 23. For mine, Alan Moore interviewed me. So Alan and I do another podcast together called XYPN Radio, where we talk about advisors serving young clients and advisors who are doing financial planning for younger clients about how they're structuring their business models and their services, and what they do. So Alan and I have gone back and forth on enough podcasts. He can interview me. He knows enough of the story and context, asked some good questions, except lo and behold, once Alan interviewed me, then he couldn't stop me from talking even more than I usually do. And so our longest podcast ever was the one where he interviewed me because he couldn't stop me.
Steve: That's fine. Well, when Angie brought that up on that episode, I'm like, "That's the gig I want. I want to interview Michael." And maybe we will, we'll still have a chance. We'll put you on our podcast and that way we'll get to interview you.
Michael: Yeah. Well, and I still get questions about other things that I get the feeling we may have to do like, I don't know, maybe episode 50. As a good milestone, we'll do another one with me and have someone else come in and interview me and ask different questions.
As we get to the end here, you know, this is a show about success and successful advisors and helping advisors towards success, but, as you probably heard from the podcast episodes, right? People have very different views and perspectives about what success is and what that even means to them. And so I'm curious from your perspective, going through this yourself, and, you know, for everybody I know who's ever done coaching with advisors, it becomes very clear very quickly when you start doing coaching with advisors that we have very different definitions of success and what we're working towards. And so I'm curious from your end, like, what does success mean for you?
Steve: I could be snarky and say total world domination, of course. But, seriously, you know, and it may sound like a load of malaca but, you know, I…what I really want to do, ultimately, is I want to change how advice is delivered, in that I want…really, what it eventually comes down to is if you work with a specific group of people on unique needs and challenges, and desires, you get to know that group and you can deliver advice that's better and different than a generalist who has different kinds of people walking in the door. And you can create better outcomes for those people.
So my mission is to get everybody to focus on something and get away…because there are now plenty of CFPs that can handle the basic stuff. And now where we've got Vanguard getting in the game, and we've got, you know, all kinds of other companies that are sort of creating a base level of access to financial services, if you're a professional and you really want to specialize in this as a profession, and as a career, pick a group of people and figure out what's special about them, and work with people like that because you're going to give better, deeper, richer, advice. And because of that, you're going to create better outcomes. And if a lot of people do that, then everybody is better off. So, I mean, to me, that's what I'm after in this whole thing. That's where I want this to go eventually.
Michael: Yeah. Well, and it strikes me for the landscape we're in, that I feel like there's a niche imperative that's starting to loom for us, which is as these large firms start coming increasingly, like, directly into the advice space, right, Vanguard's advisor solution and Schwab has done an advisor division, and, you know, frankly, most of the RIA custodians, they have a retail side, have some kind of private clients group, the more people…the more large firms that come into financial services and advising, the more pressure there is, I think, on anybody in the independence space, just any advisor trying to create their own advisory practice, that you've got to have some way to differentiate from large, broad-based firms. And it's not that there aren't going to be generalists out there, but the generalists will work at big firms like Vanguard. And you have to differentiate yourself from them.
And the paths to differentiation to me is entirely around the focus on niches. You know, when I look out 10 to 15 years, my gut is we're going to see that the largest growth firms over the next 10 to 15 years were the ones that moved first in their niches, just the same way that the growth for the past 10 to 15 years were the first people that went to RAAs, and the growth for the 15 years before that were the first people that went to independent broker-dealers. Like, it's one of those transition points.
Steve: And it could very well be that, you know, being a generalist financial advisor, or a financial planner, is a step on the career leader. That you'll learn how to do that, and you'll…and you'll learn what you don't learn in school, which is the psychological aspects, how to get people to do the right thing, and how to deal with a distraught client, and how to, you know, work with clients when the market falls. And then once you get really good at that, you start developing something special on top of it.
Michael: Well, I hope our podcast here is at least one small step forward in your emerging global domination of financial advisor niches.
Steve: Well, and I appreciate the opportunity to talk with you. Yeah, I mean, I always love talking with you and I appreciate the opportunity to be a guest on your show. Thanks so much for inviting me.
Michael: Absolutely. Thank you for joining us.