Finding Your Niche Advisor

Focusing on niches adds value, fuels returns

If you're a healthy person in need of a checkup, you make an appointment with your general practitioner. But if your issues are complicated, you probably want to see a specialist who's an expert in the field. There are usually plenty from which to choose.

Unfortunately, it isn't always as easy when it's your financial health at stake. The majority of financial advisors are generalists whose clients have a wide array of needs.

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There is a small faction, however, who are taking advice to the next level by focusing on specific niches—anything from doctors and firemen to divorcees, women over 50 and same-sex spouses. There is even one advisor who built his business around bass fishermen.

While the pool of niche advisors is small, those who have successfully honed in on a specific field can find it emotionally and financially rewarding.

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"Advisors who are appearing in niche practices are by far the minority … because advisors don't want to turn away potential clients," said Matt Matrisian, senior vice president and director of practice management at AssetMark, a firm that provides investment and consulting solutions for independent advisors.

"They believe focusing on a niche is closing themselves off to opportunities," he said.

However, Matrisian added, "For advisors who can target a niche and get economies of scale, it allows them to define their service model and processes for clients and be more profitable."

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But many advisors have a tough time seeing the forest for the trees.

Certified financial planner Michael Kitces, a partner at Pinnacle Advisory Group and publisher of the financial planning blog "Nerd's Eye View," said advisors reject the idea of niches because there is a perception that they need to cast a wider, more generalized net to capture more clients.

However, Kitces said, if you keep stretching out that net, the holes will be bigger and the fish will swim through.

"You may cover more space, but you don't get more fish," he said, noting that the solution is to make the net smaller. "While you might have a shot at fewer fish, every one you catch is yours to keep."

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Six years ago certified financial planner Michael Walther decided to narrow his net.

Walther began his career as an advisor for high-net-worth clients, but at the end of the day, he wasn't satisfied. "When you're working with the 1 percent of the 1 percent, the sense of satisfaction you get isn't as great as working with clients with whom we can have a greater impact," he said.

One day his wife asked him a question: "If you could do anything, what would it be?"

Walther's answer? Provide financial advice for special-needs families.

Specializing in special needs

As it turned out, this was something he was already well-equipped to do. Growing up with an autistic brother gave Walther insight into the financial challenges that come with caring for someone with special needs.

In 2008 he founded Oak Wealth Advisors, and, he said, the past six years have been "easily the most enjoyable time in my career."

Although Walther was warned by countless firms and advisors that working with special-needs families doesn't work from a business perspective, his team's revenue stream is actually similar to other firms of a comparable size, he said.

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Like Walther, most niche advisors attract clients through a combination of referrals and by becoming ingrained in their niche by giving speeches, participating in organizations and volunteering or networking with leaders in the space.

By becoming a known expert in a field, Pinnacle's Kitces claimed "you aren't just getting referred by clients anymore; it's everyone who sees you as an expert and is referring you."

When I see niche advisors who are four to five years out, they are getting a ton of referrals, while generalists still have to go out and start relationships from scratch.
Michael Kitces
partner at Pinnacle Advisory Group

That's a strategy that can certainly pay off over time.

"When I see niche advisors who are four to five years out, they are getting a ton of referrals, while generalists still have to go out and start relationships from scratch," said Kitces, adding that it takes years of hard work to grow a niche and build trust, but it can produce exponential growth on back end.

For most advisors, the choice to become a specialist stems from a personal connection to the niche, though it's not always the case. Some advisors start with a client or two in a certain space and then expand from there; others target an area where they see opportunity.

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For Michael Leonetti, certified financial planner and founder and CEO of Leonetti & Associates, becoming a financial expert for doctors and neurosurgeons was something that evolved over time.

"We were referred to a few doctors, and they referred us to others," he said. "We got to know a lot of the similarities between those professionals—where the risks were and what they were concerned with. It built from there."

Leonetti added that his clients place a lot of importance on "time savings and trust."

"They aren't always focused on the highest absolute return," he said. "They want someone they can trust and get consistency and results based on their expectations."

Understanding the needs of doctors, knowing the nuances of their lives and the idiosyncrasies between different types of physician groups can add a lot of value for these clients, he said.

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Recently, Leonetti's firm has begun ramping up a new niche: employee-owned businesses. This niche also came about naturally, after one client came into a lot of money when he retired and realized his company stock was worth more than he expected. Since then, this client base has continued to grow through referrals.

"These people appreciate advice and need a lot of help because this is all new to them," Leonetti said. "They value the relationship more than finding a hot stock picker."