Niches take flight

After 22 years as a pilot with American Airlines — and more than three decades of cockpit experience overall — Mark J. Bras is as familiar with pilot pension plans as he is with the runways at O'Hare. When he isn't flying, he puts his knowledge of airline pensions to good use as a financial adviser to his peers, managing about $36 million in pilot assets at American Financial Advisors Inc. in Orlando, Fla., where he is director of pilot services. Mr. Bras is one of a small minority of advisers who specialize in serving a profession or those in a distinct group and one of a still smaller group who actually are members of the niche market that they serve. Those who do specialize in this way, however, said that their narrow focus and greater credibility among prospects helps them build a more lucrative practice faster. Mr. Bras said that he be-came a certified financial planner partly as a result of his long-term interest in the subject and partly to help his pilot colleagues who were going astray with their finances. “As disciplined as we are as pilots, that discipline does not always translate to our financial lives,” he said. “Once we start thinking about financial planning issues, the wild side of pilots, the thrill of flying, comes out more than our disciplined side.” Over the years, Mr. Bras had seen many pilots invest in get-rich-quick schemes. “The result is always the same,” he said. “The pilot thought he would get a great rate of return, and he ended up losing all of his money.” Mr. Bras is driven to educate colleagues about the wisdom of passive investing with asset allocation and a long-term view. His status as a pilot with investment savvy, along with his detailed understanding of the complexities of the American Airlines pension plan, has paid off in winning over many fellow pilots. Mark Buser's experience is a nautical version of Mr. Bras' — with a twist. When he left the Merchant Marines after eight years to become an adviser, Mr. Buser, executive vice president of Johnstone Financial Advisors of West Linn, Ore., thought that the seafaring life was a part of his past. Like many beginning advisers, he spent years making cold calls and struggling to gain the trust of potential clients. “It never occurred to me that I could go back and offer my services as a financial adviser to seamen until I ran into someone I knew from my shipping days,” Mr. Buser said. Now he devotes virtually all his marketing efforts to his old profession at union halls along the West Coast, where his familiarity with the unusual demands and culture of the profession — with its highly paid workers who typically retire with sizable nest eggs — gave him immediate insider status and a huge confidence boost. Developing a targeted practice gives advisers a tremendous advantage, and they don't need an exotic career background to develop a niche, said Tracy Beckes, a business coach based in La Conner, Wash. She works with advisers to help them develop market niches, which she said they rarely do on their own. It can take an adviser a few years to figure out what his or her target market should be, Ms. Beckes said, but once they do, having a specialty can dramatically improve their business. “I see a complete shift” in how they view their business, she said. “Once you know your target market, you know the services and systems you need, the technology you must employ, who to hire and how to organize your firm.” For advisers who don't have an obvious specialty, Ms. Beckes suggests examining their existing client base and looking for trends, such as which clients are the most profitable and enjoyable to work with. “See what patterns start to emerge,” she said. Ms. Beckes said that she also tells advisers to think about hobbies or other passions they have or careers that they once dreamed about for potential markets that might be a fit. It is crucial for advisers to research target markets to understand the needs of those markets and how to meet them. Consider Mercer Advisors of Scottsdale, Ariz., which has no dentists among its owners but specializes in serving the profession. About 60% of the more than $3.2 billion in assets that it manages comes from practicing dentists, and another 30% comes from physicians. The company's founder, Ken-drick Mercer, started out as a corporate lawyer who began helping doctors and dentists incorporate after tax law changes in the 1970s made the switch desirable. The firm evolved into a registered investment adviser in the 1980s, after many dentist and doctor clients asked for investment management help. Mercer Advisors got a big boost when it won a contract with the Michigan Dental Association to provide investment management advice to its members. The firm now has 14 such endorsements. Its growth accelerated after 2001, when it merged with ExperDent, which provides dentistry practices with management and consulting services. The idea behind the merger was that the two firms could cross-sell their services and provide dentists with both practice management and investment advisory services.

UNDERSTANDING IS KEY

“It's hard for people to distinguish between good and bad investment management offerings in a crowded, noisy market, so niches are valuable,” said Gene Dongieux, Mercer's chief investment officer. But niches take time to develop, he said. “It's important to understand what a niche is and isn't. It's not just living in a town and knowing everybody at the country club,” Mr. Dongieux said. “It's not having a mailing list for all the high-net-worth people living in Highland Park, Ill.,” he said. “You have to have solutions to complicated financial problems that are shared by a like group of people.” Scott Hanson, senior partner and founding principal at Hanson McClain of Sacramento, Calif., developed his niche practice almost by accident around 20 years ago. A newspaper article that he'd read concerned a local phone company which had offered early retirement to its employees; hundreds of staffers from a nearby facility were expected to accept the offer. Mr. Hanson did some research on the demographics of the group and the specific pension details, and began offering his services to them. From that beginning, Hanson McClain has built its business on serving telephone company and utility workers, who account for the bulk of the $1.2 billion managed by his firm and the 80 independent advisers around the country that it has trained to serve the market. About half the assets come from retirement plan rollovers. Mr. Hanson said that he considers specializing “crucial” to success in the advisory business. “In other professions where they have specialties, the specialists usually bring in higher revenue and higher margins,” he said. Mr. Hanson said it is the same with advisers. “When a new client comes in, you don't have to learn” all the financial details of their employer's pension plan, and your knowledge about their situation gives advisers instant credibility. “How does someone judge a financial planner?” Mr. Hanson asked. “It is from the gut,” he said. “They don't understand half the stuff we explain to them, but if someone can explain their pension,” they are reassured. Andrew Osterland contributed to this story. E-mail Lavonne Kuykendall at lkuykendall@investmentnews.com.