Niche wealth management practices allow financial advisors to differentiate themselves in the industry. They're also opportunities for advisors who have had careers before wealth management to use their previous expertise to connect with potential clients.
Our Know Your Niche series focuses on advisors who have built niches with at least part of their client bases. Hear about
Andrew Barninger, a partner and advisor with Personal Wealth Advisory in Lancaster, Pennsylvania, works with clients who are close to selling their businesses. It's an area that was ripe for advice in his region.
"Luckily, here in Lancaster, Pennsylvania, we have a really healthy small business environment — a lot of really successful companies doing $2 million to $20 million a year in revenue. That's kind of our wheelhouse," Barninger said. "The eventual exit, sale, transition, whatever you want to call it, is going to be really important to the next phase of their life. It's probably the biggest financial change of their lives, and I want help to make sure I'm steering this in a direction that they're going to be successful."
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Barninger estimates he has around 15 clients that fit the niche, with his partners also serving a smaller number of exiting business owners. Below, he describes how they've found those clients, the specific challenges and opportunities for advising them, and advice they'd give to advisors looking to build their own niches.
This conversation has been lightly edited for clarity and length.
Financial Planning: How do you connect with business owners who are close to exits?
Andrew Barninger: What has worked better than anything else by miles, and it's not even close, is building really strong relationships with CPAs. It took a long time to learn that, a lot of trial and error.
What we learned is you can't market to that group of people like you would someone who wants help planning for their retirement. It's a totally different way of approaching them. For us, it was almost like taking a shortcut to say, well, we know their CPA is probably the advisor that they trust most and who they're probably first mentioning a transition or a sale to.
FP: How do you build the relationships with CPAs so that they'll recommend their clients to you?
AB: It's a long process that I've had to invest in in more ways than one. We are really lucky to have a local CPA firm, who we already had a fair amount of mutual clients and kind of collaborative experience with over the years and had grown to become friendly and professional colleagues with some of their partner group over the years. Even before my time at Personal Wealth Advisory, I was able to start to build connections with some of their younger partners who were my age, rather than going to someone who was 60 years old and
So just over a decade or more of doing that and focusing on communicating what we do and how we can work together, and then implementing it and showing how we're going to do well by their clients — just creating enough opportunities to show what we do and who we do it for time and time again, which, again, just takes a long time.
FP: Are there specific challenges to serving this segment?
AB: One challenge is getting in front of them. They don't work nine-to-five. They work a busy schedule. They're wearing a bunch of hats. They're really motivated to work in their business. So finding time even to set the initial introductory meeting can often be a long process, and even after a successful introduction meeting where we all say, "Yep, we're a great fit. Everyone's feeling good," it's still hard to get the engagement going.
FP: What about their specific planning needs? What sort of issues do you need to address with them that you don't necessarily have to with a general client base?
AB: One of the difficulties is their retirement is based around someone else giving them money for their business, as opposed to that person who works a corporate suite job. They can just hit a button and retire and that's kind of it.
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But for most of our clients, they don't have that luxury. They need to convince somebody, whoever — it could be a family member, could be an outside buyer, could be employees — to give them money for this thing they've built.
This is a big financial transaction that never goes the way we expect. It's really complicated trying to help them think about that in the future, when we already know we're not going to understand today what's going to actually happen.
We've had owners who started out with us and it's, "Hey, I'm going to sell my business to my son," and we worked on that for years. How are we going to do this? Your son has no money. How are we going to sell or finance this? There are CPAs involved. There are attorneys involved. And then we end up selling to an outside private equity-backed third-party buyer and that totally changes everything we just worked on.
Another big challenge is a lot of folks run a lot of their lifestyle expenses from their business. It pays for a lot of their travel, some of their personal expenses, their vehicle, their phone, all this stuff, and there's different degrees of that.
So a lot of our clients have a hard time thinking through that. When this is sold or transitioned or whatever, what do I actually need for spending on the other side? Is it $10,000 a month? Is it $20,000 a month? What do they actually need so that we can help them figure out how much they have to sell this thing for to walk away and be able to maintain their lifestyle? That's often a really hard exercise for folks to think through and be honest and accurate about.
FP: How do you manage those processes?
AB: We're usually part of this owner's professional team: CPA, attorney, business coach, whoever else is involved. The constant change has helped me understand how important it is to have a structured process that we can lean back on when things go haywire. When you're coordinating a lot of different things together, it's easy to go down different tracks and go down rabbit holes and forget about the simple stuff.
It translates over to the other side of our business, too, and has helped us be efficient in our retirement and comprehensive financial planning. That's been a big learning experience. It doesn't have to be our complicated business situations where we're living within a structure.
FP: What is your fee structure for these clients? I would imagine that a traditional percentage of AUM would not work here.
AB: Typically these clients start with us on a flat-fee engagement. Usually there isn't AUM for us to manage, so we usually start off with a flat-fee retainer type of engagement customized to them and their business and how complicated this thing is going to be. Often we move to AUM eventually.
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I think that's really helped us present a compelling value proposition to the CPAs who are referring to say, "Hey, your client doesn't have to move their money to us. They don't have to come to us after the sale when they have a bunch of money and all the hard work's already been done." We want to get in there in the trenches with you, and they pay us for what we're doing just like they pay you. I think that's been really compelling and helped us build better referral relationships with CPAs. They relate to that and understand that.
FP: What is your best advice for a planner or firm that is looking at building their own niche?
AB: Find a way to sit down and talk to 50 people in that niche with no sales pitch, no nothing. Just find 50 people who are in that niche to sit down, however you can do it — Zoom, phone, in person, coffee — and ask them open-ended questions with no ulterior motives so that you can learn everything you could possibly learn about what those people are dealing with.
Rather than assuming what you think their problems are, why don't you just go right to the source and ask them in a way that's open and not a sales pitch? That's what I would do because you may validate your assumptions. You're probably going to learn a whole lot. You might learn that the opportunity you thought was there really is different or not there. You're probably going to pick up your first clients that way, very likely.
It costs you next to nothing. I wish I would have done that — found a way to talk with 50 over-60-year-old business owners. Our niche area would probably look a lot different, but that's probably the easiest, cheapest, best way to invest some time to get started.
