How to build the perfect niche

Niche: a position particularly well-suited to the person who occupies it. Niche market: the subset of the market on which a specific product or service is focused. Niche marketing: concentrated marketing efforts on a specific and well-defined market segment. While marketing is integral to your success, it's actually a general term that encompasses various practices intended to enhance your brand and build your business by both directly and indirectly attracting and then keeping clients. It encompasses advertising, branding, customer satisfaction and much more. Niche marketing, on the other hand, is where the focus gets narrow. In the investment advisory sector, niche marketing is the process by which you work to position yourself to meet the needs of a particular subsection of the general market. The niche can be a group, collection, organization or an association comprising people who have something significant in common that makes some aspect of their advisory needs similar, so that a specific marketing (and advising) approach appeals to most or even every member of the segment. How specific you need to get to find a true niche depends on your market. But if the individuals and assets are present (or, in the case of assets, eventually will be present), an opportunity to cultivate a niche market may exist.

VARIABLES FOR SUCCESS

When we first identified our preferred niche market some 20 years ago, it had two of the most important variables for success: It was all around us, meaning it had large numbers of potential clients, but it also had very substantial barriers to entry, which are the obstacles that keep other advisers from penetrating or even pursuing the market. So while it's true that over the years, our general marketing efforts have become significantly broader, it's also true that we built Hanson McClain Advisors on a niche market that, in part, we pioneered. Many advisers see niche marketing as merely identifying a subsection of the population and then positioning oneself to cultivate it more aggressively than they pursue the general market. Technically, that's accurate. The subsection “widows of orthopedic surgeons” is technically a niche market, but it lacks a true barrier to entry. For our purposes, we want to explore the search more deeply. For a niche market, you're searching for something more than merely any individual with X number of assets. Every adviser wants those clients, so the competition is fierce. You're looking for a segment that is receptive to a tailored marketing and advising approach that both educates and meets the needs of the individuals therein. You're also searching for something that has either been underserved or remains unidentified.

NICHE FOCUS

It's pretty straightforward: You don't hire a tennis coach to teach you how to act, and rare are the clients who will hire an adviser who doesn't understand what's unique or complex about their specific goals or financial situation. To widen the net, the deeper your insights and knowledge of a group's needs, the more likely you are to be selected to advise members of the market. While it's difficult to position yourself as a general practitioner and then still thrive as an investment adviser, this is especially true if you are just starting out. That's because a major aspect of client accumulation involves trust: the trust that you will serve their best interests and the trust that you do indeed know what you're doing. Rookies can't just borrow a track record. Trust takes time to build. So if you don't already operate a firm with 20 years of investment advisory history and neck-high referrals, or if you have a mature firm that has stagnated, we suggest you consider recalibrating and adopting a niche model. So what are some of the primary advantages of focusing on a niche market? A clearly defined market strategy, aimed at a specific demographic, allows you to create and perfect a more compelling message than a competitor who is positioned as a general practitioner. You are on the inside, while your competition is forced to wait outside the door. You're potentially developing an ongoing pipeline of new clients that could continue throughout your entire career. You are in competition with other advisers. In a general market, it's a good bet that for every available client, you have numerous competitors who are minor experts in just about any subset — not to be confused with niche market — of the population (e.g., they can boast of the experience of having worked with trial attorneys with two ex-wives because two of their clients fit that description). Having a target-specific practice is not only one of the best ways to build your firm, but being an expert in your target niche will benefit your clients, whose financial needs you'll be addressing expertly. So whether you refer to it as niche marketing, niche mining, niche pioneering, targeting or specialization, one of the best ways to build your practice is by directing your acquisition strategy, and your advising focus, squarely at a viable niche (or, depending on your geography, possibly two or three). This means finding a niche that: • Is a true subsegment of the general market (or the pre-general market, if their assets are currently unavailable). • Shares common needs and interests (e.g., members of a company or industry with a dedicated pension or defined-contribution plan). • Is reasonably plentiful (a large company, or an entire sector of an industry that is specific to your region or otherwise geographically desirable). • Is largely ignored by the competition, ideally because it has barriers to entry. Again, if you become an expert in the needs that are specific to the niche, you're positioning yourself as the option when those clients are ready to work with an adviser.

DELAYED GRATIFICATION

When we founded Hanson McClain Advisors, we went all-in on our chosen niche. It was one of the best decisions we ever made. We were in our 20s and just starting out — we hardly had any capital — and yet we went out and selected a niche that actually offered us only a limited opportunity to manage client assets immediately. Choosing to work with this niche meant delaying gratification. Poor cash flow probably should have sent us in search of every type of client we could identify, but we didn't stray from our plan. Instead, we saw the future opportunities that existed, and so we took the long view and doggedly pursued our target niche, which was a good-sized entity that had been largely underserved if not entirely ignored. Most advisers believe there are but two main ways to acquire clients: Either be there when the money is in transition, say, after an inheritance or when a person retires, or be there because the client is unhappy with their current adviser and prepared to make a change. Being that we were young and had relatively little experience, and being that we were determined in spite of our youth to be independent investment advisers and go it alone, we knew that we'd have a hard time wooing retirement-ready investors or the wealthy, who were typically more than twice our age. Determined to find a third way, we dedicated ourselves to pursuing the Northern California employees of AT&T. While AT&T is a world-famous company with tens of thousands of employees nationwide, locally, the barrier to entry for advisers was that the members of this niche were not only still employed but also not particularly well-paid by the manageable-assets rating standards of most investment advisers. So why go after this demographic when they had yet to retire and they had no money to invest? Once we researched the data, we knew we had an opportunity. The reason is that AT&T not only sponsors defined-benefit plans for their employees, they also sponsor defined-contribution plans. By modern business standards, where pensions are rarely offered to new hires, AT&T's retirement plans, even for service technicians, operators and linesmen, approach the gold standard by paralleling the modern public-sector retirement plan model.

THOUSANDS OF PROSPECTS

There are thousands of AT&T employees just in the Sacramento, Calif., region. Our research revealed that upon retirement, and in lieu of a monthly pension, most usually elected to receive a $300,000 to $400,000 lump-sum payout, in addition to whatever they'd accrued in their 401(k) plans. This meant that some of these employees would have accumulated over $700,000 by the time they retired, and they would also still have Social Security to rely on. We took to calling this demographic the “mass affluent.” As just about any lottery winner will tell you, people who have earned $50,000 a year over the course of their careers are rarely prepared to properly manage a $700,000 lump sum that comes their way. We knew they'd need assistance managing those assets. And we wondered what it would take to become AT&T's go-to advisory firm for the Sacramento region? Realizing we needed to get inside the company, we dedicated ourselves to: • Becoming experts in the AT&T retirement and pension plans. • Educating employees about their retirement plans. • Establishing relationships that would be mutually beneficial over an extended duration of time. Eighteen months after we first created our marketing plan to capture the AT&T market, we became so well-known to their employees that we were sometimes given unoccupied offices to work in whenever we visited their facilities. So how did we accomplish this? On the back end, after we got through the door, was the hard work of gaining knowledge, marketing, promoting, hosting workshops and building a database. But out front were the barriers to entry. Great niches may have several barriers. Think of it as the perfect gift wrapped up in numerous ribbons and layers of paper. While not having money to immediately invest was the main barrier to entry which had kept most other advisers from cultivating the pre-retirement employees at AT&T, it certainly wasn't the only one.

BARRIERS TO ENTRY

Below is a list of barriers to entry that we identified as we built up our relationship with AT&T. This list has dual purposes: Besides enumerating many of the barriers to entry to AT&T, it also represents many of the exact things you should consider looking for to help you identify a worthwhile niche market: • Workers who are still employed. • Middle income (or they would already be targeted). • A large company, the bigger the better. • Good retirement plans, with pensions and/or 401(k)s and company stock. • Secure offices and facilities (fences keep out other advisers, but not you). • Unionized. • Has some need that is not being met (perhaps no one understands their retirement plan). • No track record of previous cultivation by advisers (niche members are unfamiliar with the advantages of receiving professional investment and planning advice or working with advisers). • A major company in transition, if not outright upheaval (large companies in transition often offer thousands of simultaneous early- retirement buyouts; employees concerned for their futures need professional financial advice). • A general suspicion of outsiders (once you're inside, this works to your advantage). Remember, barriers to entry give you an edge. While seemingly a nuisance, they are the very reason that the untapped niche exists. The niche, at a glance, is thought to be too difficult to break into. But barriers exist in all worthwhile niches. They work in your favor by keeping others out.

MARKETING TO THE NICHE

“The aim of marketing is to know and understand the customer so well, the product or service fits him and sells itself.” — Peter F. Drucker The first thing you should do is develop a marketing plan that is specific to your niche. According to a 2009 study by The Wharton School of the University of Pennsylvania, only 38% of companies have an updated plan, and yet it only takes an hour or so to create a tool that can help guide you to your destination. It need only be a page or two long, but it's vital. In fact, at the risk of being redundant, marketing plans are the one thing all great marketers agree on: You need one. Create it today. Excerpted from “Investment Advisor Marketing: A Pathway to Growing Your Firm and Building Your Brand” by Scott Hanson and Pat McClain (Irish Canon Press, 2013).