Think Big about Small Niches

Reps who organize their practices around a specialty do significantly better than generalists.

All aspirin is alike and, to a certain extent, the same is true for reps: About 75 percent of advisors offer the same services, according to Cerulli Associates, a Boston consulting firm. And because the services that the average generalist offers have not been faring well in this market, it behooves advisors to figure out how to do something different.

Not only do brokers who create a niche practice have a better chance of generating business now, they earn upwards of 50 percent more than the generalists in good times and bad. And specialists also have a better chance of keeping clients and winning affluent ones. In fact, according to a recent study by Moss Adams, the Financial Planning Association and SEI Investments, about 22 percent of clients in niche firms have $1 million to $5 million in assets under management, compared to 7 percent of clients at certain non-specialized firms.

Advisors can become specialists in a particular product — utility stocks, for instance — or in a certain type of account, such as retirement funds. Or, a rep can zero in on certain types of clients — doctors or teachers or Asian-Americans.

“Truly successful producers are highly specialized,” says Andre Cappon, president of The CBM Group, a New York-based consulting firm specializing in the brokerage industry. According to CBM's data, the top-producing brokers have whittled down their repertoire to one or two products, about which they have deep expertise. The typical neophyte broker is busy trying to sell three or more products — about which he has less knowledge — to clients from every walk of life. That makes for low productivity, Cappon says.

Why does specialization work? For starters, niched reps understand their clients better, because they have dealt with other clients with similar values and goals. “You have insights into their fears and challenges, instead of being all things to all people,” says Matt Oechsli, who heads the Oechsli Institute, a financial services consulting firm. (He also writes for Registered Rep.).

Advisors at Christopher Street Financial in New York City, for example, which focuses on gays and lesbians, are expert in matters related to estate transfers between unmarried partners. Such knowledge is a great selling point in locales where same-sex couples do not have clearly defined legal status. (Most of the U.S.).

At Octagon Financial Services, a McLean, Va. firm that handles financial planning, contract negotiation and commercial endorsements for athletes, vice president Frank Zecca knows that the young sports stars he handles tend to require more handholding and financial education at first than an older and more financially savvy client (see sidebar.)

Gregg Fisher, president of Gerstein, Fisher & Associates, a New York firm focusing on teachers, college professors and other academics, understands the complexities of teacher pensions. (A New York pension is exempt from state tax only if you stay in New York, for example). “If you don't specialize, you might overlook a lot of important things,” Fisher says.

Another big advantage of specialization is that prospecting becomes more efficient. Fisher says that virtually all his new clients come via word-of-mouth. “If you make a name for yourself, you'll be the first person that comes to mind when someone is looking for an advisor,” he says. “When a teacher is looking to retire in our area, they'll almost always have heard our name.”

There is good evidence that niche brokers are more productive — both in the sense of how they use their time and in how much revenue they produce. “Everyone, in both wirehouses and independents, has finite resources in terms of time, money, management and energy,” says Mark Tibergien, a partner with Moss Adams, a Seattle accounting firm. “When you focus on a specialty, you're better able to concentrate those resources.”

And you make more. Revenue per professional is $181,741 for niche firms and $200,200 for firms that have a technical specialty, compared to $121,000 per professional at some generals firms, according to Moss Adams. “More in-depth client relationships lead to greater wallet share,” notes Dennis Gallant, an analyst with Cerulli Associates.

So, if running a niche practice is the place to be, how do you get there? Experts recommend that reps start by assessing the characteristics of their top 20 to 25 clients. Analyze them according to 15 or 20 attributes, such as occupation, interests and age. Next, determine what asset level you want to work with. Finally, make sure whatever you come up with is something that really fits your personality and work style. “If you're hyper and have a short attention span, don't focus on engineers,” says Kim Ketchum, a broker with Ketchum & Co. in Greensborough, N.C., who targets doctors.

It's also prudent to avoid the usual suspects, such as wealthy executives, since everyone else is targeting them, too. That's one reason why Fisher focuses on teachers — especially those nearing retirement. Fisher's wife is a teacher, and his uncle runs an accounting firm that specializes in academics, so the area seemed a natural fit.

Plus, it's a market that is not rife with brokers and, despite their relatively modest salaries, retiring teachers often have sizable pension portfolios. He points to a client who, thanks to her regular contributions to a tax-deferred annuity over a period of 30 years, retired with around $1 million. Teachers “end up retiring with an income stream equal to most doctors,” he says.

Sometimes events will point a broker to the right niche. That's what happened to David Blaydes, president of Retirement Planners International in Naperville, Fla. He started out 22 years ago focusing on retirement planning. Then, 10 years ago, “companies stopped retiring people and started firing them,” he says. So, he gradually changed his practice to work with a half dozen outplacement firms, plus individual companies, focusing on handling laid-off employees. He typically meets with each person three times. Many go on to become long-term clients. (He only works with people with $1 million or more in assets). Still, many of the issues he faces are the same ones he dealt with before. “My forte is as an emotional financial planner,” he says. “We hold hands a lot.”

Don't look for a transition to a niched business to happen overnight, however. It can take years to win the confidence of your target market. One way to start is to find a particularly loyal client who falls within the right category and seek his or her sponsorship. A small business owner, for example, might invite you to speak at the next Chamber of Commerce meeting. A doctor might let you do a seminar at his or her hospital. An executive might help arrange for you to do a lunchtime workshop on retirement planning. Think about attending conferences and trade association meetings held by people in the targeted profession. Build in extra time during meetings to pick your clients' brains about the hot issues you should know about. And be prepared to spend some money: One broker spends $12,000 to $15,000 a year in advertising to doctors, his target market.

“Many people think niche is just marketing. But it means gearing your whole practice around the unique characteristics of that market,” says Tibergien. The bottom line: Figure it will take 24 to 36 months really to penetrate a niche.

You also may need to be ruthless about maintaining your focus. While every single client in your practice doesn't have to be part of the specialty, you have to be pretty careful when accepting those who aren't. An advisor who has built his entire practice around alternative investments for high net worth individuals says that he recently turned away two new clients, handed over when a colleague retired, because they didn't fit the target. “In this economy, that can be hard to do,” he says. “But we need to have clients fit our category, so our analysis and research can be applied across multiple relationships.”

When Your Client's a Real Pro

Making a living from serving professional athletes is rewarding, but tough.

Professional athletes: Now there's a niche for you. Glamour. Celebrities. Millionaires all around. But, as Frank Zecca, vice president with Octagon Financial Services in McLean, Va., can attest, providing financial advice to sports stars like Michael Vick and Moses Malone isn't all fun and games. In fact, while targeting any special market brings advisors face-to-face with idiosyncrasies and odd requirements, working with athletes may involve some of the most unusual of them all.

First, there's the matter of what a small, and fluid, community it is. “Clients move around a lot,” says Zecca, 37, who joined the 20-year-old Octagon Athlete Representation ten years ago. The parent company of Octagon Financial, it also handles contract negotiations and commercial endorsements. As a result, his work is especially public — and reputation goes a long way, which is good news if you do good work, and really bad news if you don't.

Then there are the peculiar requirements of each sport and how athletes are paid. Basketball players, for example, tend to get contracts that are guaranteed for the life of the agreement. While football players rarely receive such guarantees, they typically get big signing bonuses.

But, the most delicate part of all has to do with the simple fact of age: At least a third of Zecca's 120 clients are barely out of college — and their knowledge of even simple financial matters is largely non-existent. As a result, Zecca spends a great deal of time in the beginning explaining concepts that “most 45 year-old executives understand.” Some examples: what a tax deduction is, and how a mortgage works. “You're more like a trust officer in charge of a teenager who inherited a lot of money,” Zecca says.

So, Zecca's M.O. is to take it slow. Octagon focuses on the basics first: helping clients buy their first car and house, setting up bank accounts, learning about budgeting. “It's the building blocks,” he says.

Even with this education, most athletes when they receive their first contract go out and buy, buy, buy. “After a 22-year-old athlete signs, he spends it on all sorts of startup costs — a car, a house, furniture — that an older person already has,” says Zecca. For this reason, “The amount of the contract does not immediately translate to assets under management.” The upshot: a period of as much as two years before athletes have a stable portfolio — and the advisor can really start making money. That's why, in part, the firm focuses on athletes at various stages of their careers, including more mature, settled types who have learned how to save, invest and plan for the future.

Of course, most advisors work with people who plan on making money over time, while many of Zecca's clients rake in their millions in just a few years. “We're not trying to make these guys rich. Our job is for them to leave the game with what they had in the beginning,” says Zecca. “It's very challenging.”

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