Today, we wrap up my conversation with Kirk Hulett, senior vice president of strategy and practice management at Securities America.
Throughout this series, we have delved into one of the most sought after ways to build your book of business—serving a niche. We have talked about where you can look to find the niche that’s best for you, how to know whether focusing on that market can truly add zeros to your AUM (or just add hours to your work day) and even how to demonstrate your new expertise in that niche to the clients within it.
Today, in the last of our three-part series on this topic, Hulett will tell us what types of challenges to expect and the one thing no one talks about when discussing how to focus on a specific target market: what to do with the rest of your clients.
Q: What challenges should advisors who are looking to begin serving a niche expect?
A: It’s about patience. These things don’t happen fast. Advisors shouldn’t expect to decide to start serving a niche and then two weeks later have clients in that niche. I’ve known advisors who work for two years on a niche before they really start seeing returns. You have to put a lot of investment and time into serving that niche.
Q: What about the clients advisors already have that don’t fit into the niche?
A: One thing you’re going to come up against is finding the time to serve them. I’d suggest going back to the clients who aren’t in that niche and doing a segmentation and analysis around what their contribution is—the profit per client—and really look at what clients are contributing to your overall revenues. You’ll probably find the classic 80/20 scenario: 80% of your revenues come from 20% of your clients.
If there are some clients that it doesn’t make sense from a business standpoint to continue serving, you can bundle them up into a partial book sale and another advisor may want to buy them.
Q: How do clients respond to such a sale?
A: Most clients respond okay, because the advisor should have a conversation saying, “I’m going to be focusing my business here, so I won't be able to serve you the way I would like. So here is another advisor who can serve your unique needs and pay more attention to you.”
Q: Is there anything else advisors can do besides selling off the clients that don’t fit into their niche?
A: Another strategy is to bring in a junior advisor on salary to service the accounts that are not in the niche. However, you must be careful, because if those clients weren’t profitable for you, they probably won’t be profitable for the junior advisor either. If the client isn’t profitable for you, they probably need to find themselves another advisor. For clients who are profitable, though, it might make sense to bring in a junior advisor to serve them so the senior advisor can leverage working on that niche.
Q: Should you only serve one niche, or several?
A: If you want to go big and if there is a lot of opportunity in the niche you’ve chosen—a lot of dollars in transition—you can only really serve one niche. If you want to hit on micro-niches, such as trying to get 13 veterinarians and then get four owners of dry cleaning stores, those will be small niches and smaller opportunities but you can make it work.
Q: Is this a good time to bring in other advisors, CPAs or financial professionals who may know something about this niche that you don’t to build a network and make the clients more comfortable?
A: Yes, absolutely. During your target market research you will find out what other professionals are working with this niche. For example, if your niche was small business owners who were small construction general contractors, things like P&C insurance and workers compensation is a huge part of that contractor’s life. Insurance providers, then, will know a lot of general contractors and could be a real entry into that niche.
As we conclude our look into how to build a profitable niche, I have one question for you: Do you serve a specific market in your practice? If so, write to me at Stacy.Schultz@sourcemedia.com and tell me about your journey. How did you get started? How did you become an expert that could give your clients the unique service they need? How much did you build your book of business?
I can’t wait to hear how people put these incredibly useful suggestions to work!