For most of its history, the financial advice industry has been predominantly transaction-based, with advisors earning a living solely from the commissions they earned on whatever product they sold to help their clients meet their needs. And since there wasn’t any reason to meet with those clients again until there was another opportunity to implement a product, advisors needed to attract as many potential clients as they could in order to be successful. As a result, it was essential for advisors to be as broad in their messaging and marketing as they possibly could, to be certain they reached anyone who might potentially be able to buy their company’s products.
However, as the industry has moved towards recurring-revenue model, where advisors are paid for ongoing financial advice, not only has it become increasingly difficult for advisors to stand out in a crowded and competitive marketplace, but as recent Kitces Research shows, advisors who serve a niche enjoy clear operational benefits as well, including the ability to spend more time on high-value, client-facing activities, charge more for the advice they give, scale their practices more efficiently, and earn (on average) more than 50% more than their non-niche counterparts. Yet, the reality is that many advisors still balk at the notion of focusing in on a specific niche, which raises the question: why is it so challenging to choose an area of focus, and how does one get comfortable choosing a particular niche to focus on?
In our 51st episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss some of the reasons advisors have a hard time committing to a niche, the mindset shift that advisors can make when thinking about the choice to serve a niche, and why relevance (through serving a focused clientele) is a key element to building a successful advisory business in the future.
As a starting point, it’s important to recognize that the most common reason that advisors avoid ‘just one’ specific client-type is that they worry that they will have to say ‘no’ to prospective clients who don’t fit that focus… and actively turn down revenue in the process, which a particularly daunting prospect for advisors who are in the early stages of their career. Yet, the likelihood is that very few people (if any) end out saying ‘yes’ to advisors who try to be everything to everybody in the first place. Which is often readily apparent when looking at advisor websites, that (for generalists, at least) rarely generate leads, despite seeing (usually) a few hundred visitors each month… who might arrive at the advisor’s website, take a (virtual) look around, but leave without taking any action. Put another way, advisors who don’t develop the expertise to solve specific problems for a specific group of people better than anyone else may be able to work with anyone, but don’t end out being relevant to anyone.
Ultimately, the key point is that deciding to serve a niche isn’t about saying ‘no’ to a bunch of prospective clients, it’s about getting at least a few more potential clients to say ‘yes’ in the first place. Getting started as a financial advisor (regardless of the business model) is by far the most difficult stage in every advisor’s career. But the good news is that there is nothing to lose by not trying to be everything to everyone, and a whole lot to gain from getting really good at serving a specific clientele with issues that are unique to them for which the advisor can offer differentiated value. In the process, advisors can move from not being relevant to each and every person with whom they interact, to being in a position to serve the exact needs of at least a few of them… which, at the end of the day, is a big step forward, both for advisors just getting going, and for advisors who want to take their businesses to the next level!