3 things to consider when selecting a niche

Many advisors start their careers taking on anyone and everyone as clients. While understandable, the long-term effects of this choice can hamper a practice’s growth for years to come. Twenty small or nonideal clients might be manageable for an advisor or team, but 100 of these clients could hinder a firm.

We coach advisors to think through their ideal clients from the very beginning, so they can build their expertise around a group they enjoy and achieve success in this niche. More specifically, we work with them to develop a niche, a focused clientele group that the advisor is uniquely able to serve. Not only does specializing in a niche offer greater opportunities for growth, but it means you have a proactive strategy for capturing business from a market segment you want to work with.

GAIN GROWTH OPPORTUNITIES, SCALABLE SERVICES

Considerable research shows that having a clear focus is great for business. Studies from Kitces Research in 2020 found that top advisors with a niche (versus top advisors without a niche) serve an average of 14% more clients and have clients with an average of 25% more investible assets and higher net worth. A practice with more clients (who have more assets and higher net worths) certainly sounds like something worth working toward.

Additionally, time-strapped advisors are always looking to do more with less. So by focusing your efforts, you can gain expertise and experience to scale more effectively. Kitces Research also revealed that advisors with niches spend 150-plus more hours every year on high-value, client-facing activities—or 28% more time with clients and prospects — while spending 13% less time doing back-office tasks. This additional time spent with clients and prospects can lead to deeper relationships, giving the growth numbers more context.

Specializing in a niche empowers you to be strategic about the clients you want to serve, and it’s especially useful if you adopt a virtual mindset or want to take on virtual clients. If you have expertise in something your niche needs, people can then find you and work with you from anywhere.

When developing a niche, remember to keep these three things in mind:

1. A GOOD NICHE SHOULD BE IDENTIFIABLE

Advisors need to be able to locate the people in their niche, communicate with them, and truly understand their needs. We know advisors who have niches in municipalities, biotech and pharmaceutical industries, fire and police departments, education, and high-tech corporations. We also know advisors who focus on specializations like funeral homes and car dealerships, which are bit more esoteric (but can be highly profitable).

2. A NICHE SHOULD BE PROFITABLE

It’s important to focus on a niche that will enable you to use your services and pay your fees. You are running a for-profit business, after all. Should you wish, there are many ways to help people who aren’t ideal clients through financial literacy programs, such as free webinars, courses or pro bono work.

3. A NICHE SHOULD PLAY TO YOUR STRENGTHS

Most advisors develop a niche because they have an interest or expertise in the people or subject matter — whether it’s past jobs, shared values, or the use of technology. For example, an advisor who worked at an ice cream stand during the summers and as a waitress during the school year became the go-to person for seasonal and cash businesses in her area, attracting ideal clients to her practice.

REFINE YOUR FOCUS AREA

Niche advisors are specialists who have expertise in solving particular problems for a very select group of people with similar needs, so it’s important that you carefully sift and sort out what that focus should be for your practice. If you’ve thought about exploring a niche in the past and you want to set up your business for success, start creating a plan that will get you there in the New Year!

[More: The sky’s the limit for an adviser dedicated to working with airline pilots]

Kristine McManus serves as chief advisor growth officer at Commonwealth Financial Network.