My experience has shown me that advisers who target a specific niche of clients receive more referrals, are able to provide better service and can charge higher fees.
In my early days as a financial adviser, more than 90% of my clients were employed by (or recently retired from) Pacific Bell. In the mid-90s, many old-line companies were downsizing their workforces by sweetening their buyout offers and retirement packages. Their pension plans were overfunded, so it made sense to use that money to incentivize older employees to retire.
As a young adviser in need of clients, I looked at this as Business 101: Find a need and fill it. I studied everything I could about Pac Bell’s pension plans and soon became an expert in the company’s retirement benefits. (So much so that eventually, Pac Bell’s HR department began to call me to ask questions about their own company’s plans.)
Pac Bell’s retirement packages were surprisingly generous and often too good to pass up, but the plans themselves were quite complicated. While vesting schedules were based upon years of service and age, there were not only myriad other factors that could impact the pension amount, such as job title and breaks in service, but pension cash-out amounts were determined by current interest rates. This meant the value of the pension could change on a quarterly basis, sometimes by tens of thousands of dollars.
As a specialist, I had three advantages over general market advisers.
The first was that I could provide a specific niche with expert service. As an expert, I was able to quickly ascertain which retirement packages were suitable for which groups of employees. Further, because I understood things like the company's pension cash-out formulas, specific 401(K)s, and health coverage benefit packages, the value I could provide was much more expansive than that of a typical adviser.
The second great advantage was efficiency. As I understood these folks, and Pac Bell’s benefit packages, I had the ability to connect with new clients quickly, which means I had to spend less time marketing. Further, after working with this niche for a while, the plans became second nature and I was able to drastically reduce the amount of time it took for discovery and planning. There were weeks when I would see a new client nearly every hour.
The third advantage of working with a highly specific business demographic is that of pricing. When you’re viewed as a commodity, say, like a robo-adviser, fees become a primary consideration. But when you're a specialist who can offer solutions and answer questions that other advisers can’t, clients clearly see your value and you can charge higher fees.
Our firm has grown dramatically since the early days of being phone company pension specialists, but we still heavily target a handful of industries and find that those clients not only tend to be our most profitable, they are also among our most loyal.
Scott Hanson is co-founder of Allworth Financial, formerly Hanson McClain Advisors, a fee-based RIA with $8 billion in AUM.
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