Is this the era of specialization for financial planners? Some 56.4% of advisers now specialize in certain client niches, such as retirees or pre-retirees or small business owners, according to a survey from CEG Worldwide. Planners say this percentage will only grow over time.
“It’s absolutely inevitable that the industry heads in this direction,” says Chad Hamilton, vice president of practice management at Mariner Wealth Advisors in Denver. His firm focuses on small business owners, corporate executives and pre-retirees.
“Advisers will work like other industries, such as medicine,” Hamilton says. “If you’re looking for a type of procedure, you go to that kind of doctor.”
If someone is selling a business or needs counseling about an executive compensation issue, for example, he or she will want an adviser who specializes in this area. “Think of it as a Google search for that particular expertise,” he says.
So what customer niches are likely to receive the most focus? Retirees and pre-retirees, according to CEG Worldwide.
“The first thought for advisers is to go where the money is, and that’s wealthy people,” says Tom Fredrickson, a planner in Brooklyn, New York, who’s part of the Garrett Planning Network and specializes in serving pre-retirees and young families. “That’s the segment everyone wants, and a lot of people are serving it.”
AN INTERESTING TWIST
He and others say the aging of the baby boomer generation (those born in 1946-1964) is causing an increase in the number of advisers who concentrate on retirees, pre-retirees and baby boomers. These people need planning help on Social Security, 401(k) and other retirement accounts. There’s an interesting twist to this work.
PQ “Traditionally financial advisers focus on accumulating assets, rather than spending them down,” Fredrickson says. “But in this case people will need expertise on issues like which account to draw from.”
One distinctive problem for baby boomers is that their parents sometimes need considerable financial help, as they didn’t expect to live so long and are outlasting their money, says Karim Ahamed, senior investment adviser at HPM Partners in Chicago. So the boomers need counseling about how to assist their parents. That can involve providing cash or arranging for a reverse mortgage.
Specializing on retirees is a natural for Pittsburgh's Legend Financial Advisors, says President Lou Stanasolovich. “We probably have 85% of our clients over 50,” he says.
AN OCCUPATIONAL FOCUS
The elderly need plenty of medical care, so that led Legend to specialize in physicians as well. “We continue to pursue doctors, because we think they will continue to be a growth industry, as baby boomers age,” Stanasolovich says.
But doctors may not represent a strong focus for many advisers, given the growing financial constraints of the health care system that are weighing on their income, Ahamed says. “The last few years haven’t been kind to physicians,” he says. “There are now more restrictions on them. In some cases, they’re now employees rather than solo practitioners. The younger cohort hasn’t seen the wealth opportunities of previous generations.”
QuoteDoctors may not represent a strong focus for many advisers, given the growing financial constraints of the health care system that are weighing on their income.
The same is true for other professionals, such as lawyers, architects and accountants, Ahamed says. “Attorneys typically have high expenses, especially if they have student loans,” he says. “A lot of them are spending much of what they earn.”
Hamilton sees more categories arising for specialization. “A colleague of mine works with pilots,” he says. “That’s a small niche, but he knows all the issues related to their pay. These sorts of themes will play out more.”
Hamilton also thinks the business owner category can grow. “These people not only need personal financial planning, but also help with the business itself, and that’s their single biggest asset,” he says. “Those advisers that can address this in detail — helping to grow a business, insure it and prepare it for sale — will get these customers.”
One category not included on the 2015 CEG list — the most recent data available — was millennials (adults born between the early 1980s and the early 2000s). Advisers say this will become an attractive niche. Members of this generation may not have a lot of assets yet, but plenty of millennials could use the services of an adviser.
“They can be well served by different financial models, such as retainers or hourly planning fees,” Fredrickson says. “They are used to paying fees for cellphone service, etc. You can use financial planning software, asset aggregation tools and robo advising to help these people.”
He has seen new firms succeed with this approach. “You can help in providing fee-based service profitably,” Fredrickson says. “Certain people realize their employers won’t give them [financial planning] information, so they will look for help outside.”
QuoteAthlete salaries are rising, especially in sports, as pro leagues reach new labor agreements.
Frank Zecca, managing director of Octagon Financial Services, a wealth advisory firm in McLean, Virginia, thinks his firm’s focus on athletes and entertainers will pay off in coming years. “There will be a lot of growth because salaries are rising, especially in sports, as pro leagues reach new labor agreements,” he says.
To be sure, advisers should be careful not to take on too many customer niches, Stanasolovich says. “You can probably have three to five,” he says. “Otherwise, you become a generalist shop that’s all things to all people, and you might end up just managing money.”
But Ahamed isn’t so sure that specialization is the answer. “I’m hearing of cases where people turned clients away because they don’t fit the model,” he says “That school of thought may have gone too far. People may come to realize that being a generalist isn’t so bad.”
Specializing leaves you with nothing to fall back on if your specialty areas sag, he says. Ahamed’s firm, HPM Partners, which has a generalist tilt, does plenty of work for private equity and real estate executives. “But if we limited ourselves to that, we would lose a lot of opportunities,” he says.
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