Wealth managers who focus on a specific target market—like McDonald’s franchisees—become experts in the needs and nuances of that market. In turn, they can better serve clients, making them happier.
But advisory firms that serve a niche group of clients effectively are also significantly more profitable than others, according to the 2018 FA Insight Study recently published by TD Ameritrade Institutional.
The benchmarking study found the median operating profit margin for target-focused firms was 18 percent higher than others and the median annual client growth was 35 percent greater. “By staying laser focused on their target client these firms are able to realize greater efficiencies in servicing and marketing, which in turn reduces costs and boosts growth,” the report said.
The laser focus seems to be the difference-maker. Although 63 percent of firms surveyed defined a specific target market, the majority said 80 percent of the assets they managed belong to only 20 percent of their clients, according to the report. If firms were truly focused on target markets, that group, at least in theory, would account for a greater percentage of their clients and help disperse assets managed across more accounts.