Why advisers should go all in on niche markets

The topic of whether advisers should consider themselves a generalist or a specialist has been publicly — and some would say tirelessly — debated for decades. So why are many advisers still caught in the middle of the niche versus generalist mindset?

I believe one of the biggest reasons is that over time, our industry has synonymized niche practices with boutique practices. By doing so, we’ve missed the entire point of the discussion.

It’s time we shift the narrative away from “small versus large” and instead focus on the many ways that carving out a unique niche can be the rocket fuel to grow a meaningful practice with long-term growth potential and a recession-proof business model.

THE BUSINESS CASE FOR NICHE MARKETING

According to practice management experts Mark Tibergien and Michael Kitces, having a niche is a wonderful way to grow your practice.

One of the reasons for this is marketability. When a firm can clearly define its expertise and unique differentiators, it can also more easily identify who it is it wants to reach, and then market to them in a specific, intentional way. The return on investment of client acquisition grows higher because firms aren’t wasting time marketing everything to everyone. They’re focusing time and energy on what they know will convert.

Another, often overlooked, reason that focusing in on a niche client segment has a higher scalability potential is because their clearly defined value propositions can make it easier to acquire or merge with firms that complement their niche service offerings. For example, if your advisory firm specializes in working with educators, a natural acquisition target might be a firm that exclusively works with women clients, given the high percentage of educators who are women.

You might be asking, will this limit what type of advisers join our firm?  How do we find advisers with the same interests and experience in our niche?

In our experience, because we have been able to carve out a variety of specialties — from AT&T employees to widows and divorcees — our firm has been a welcome change for generalists looking to channel their skill sets into one or more niche areas.

FINDING THE RIGHT NICHE

Early on in my career, in 2000, I was living right outside of Atlanta, where the largest employers were Delta and BellSouth (later acquired by AT&T). I knew the geographic area and I knew the good folks who worked at these corporations, and what kind of needs and lifestyles they wanted, because I was part of their community. I chose to focus specifically on serving employees of what later became AT&T, and the rest was history. This segment still represents our firm’s largest client base.

Also, there is no such thing as a niche that is too specific. Here are some examples:
• Divorcees
• Small business owners in the suburbs of Atlanta
• Veterinarians
• Parents of children with special needs
• Airline pilots

Whatever your niche may be, I highly recommend that you have a personal connection to it. You are going to need to fully understand and advocate on behalf of your clients, and that’s going to take a commitment to continuous learning.

Remember that one specialty can always lead to another. You have permission to shift and expand your practice depending on what works, and what fulfills you.

STAY THE COURSE

The single most common reason some niche practices fail is simply because the adviser gives up too early. They get so very close to striking gold, yet the discomfort of slow progress becomes unbearable, and they walk away.

When you build a business around a specific type of clientele and service model, you probably won’t see the immediate growth spike you’d expect as a generalist. I like to compare this to a vineyard. Once you’ve planted the seeds, you’re not going to see the fruits of your labor immediately. But over time, as you carefully nurture your client base and carve out a lucrative and meaningful niche, you’ll have a practice that is one of a kind, in demand, and perfectly balanced, like a fine wine.

In fact, some experts find that it takes on average, three years to hit your stride with building your niche practice, so stay the course.

I encourage the entire industry not to think of the “niche or not to niche” debate on the same stage as “boutique versus mega firm.” Establishing a niche can be the most powerful growth tactic for any advisory firm.

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Rick Kent is CEO of Merit Financial Group, a national wealth management firm in Atlanta that supports both the independent broker-dealer and RIA models.