Michael Kitces, the director of research at Pinnacle Advisory Group, and publisher of The Kitces Report and the blog Nerd’s Eye View, through his website Kitces.com, has got an alphabet soup of professional designations behind his name. He’s got two master’s degrees in financial fields, a CFP and a host of other certifications many of us have never heard of (RHU, REBC, CASL?). Kitces writes and speaks about comprehensive financial planning, and his Columbia, Md.- and Naples, Fla.-based firm provides such services to clients.
“Actually going through the full steps of taking someone through a financial plan” builds trust, leads to happier client outcomes and can be “a more enriching way to understand your clients and what’s motivating them,” Kitces argues. And yet the Maryland-based thought leader and AdvisorOne contributor does not recommend that approach for all advisors.
“If you don’t want to learn all the [technical details] you need to learn to do it, then just don’t do it,” Kitces said in an interview with AdvisorOne. “There are lots of business advantages for those who don’t want to be comprehensive planners. It can actually be harder to get referrals.”
He illustrates this by positing two advisors – a comprehensive planner and a life insurance specialist. For the former, everyone is a potential client. But saying ‘Talk to my guy – he does everything’ is less motivating than a new parent in need of life insurance hearing ‘My advisor specializes in providing life insurance for new parents.’
“Doing everything for everyone means nobody refers you to anyone,” Kitces says.
Another potential hazard of comprehensive planning is undermining alliances with other professionals. “We’ve seen accounting firms that take on comprehensive financial planning, and don’t get referrals anymore,” Kitces says. “We’ve seen life insurance firms that do incredibly well by doing life insurance and nothing else.”
Indeed, Kitces is a big proponent of niche marketing. “Ultimately, we find the advisors who are really doing well have some kind of clearly defined niche that makes them easily identifiable and easily referable. It’s sort of counter-intuitive. Most people don’t say ‘Hey, to do more business, I’m gonna work with fewer people’ [by narrowing the field of clients they serve].”
Kitces illustrates this concept by pointing out that almost all advisors have their websites designed by web design companies specializing in financial advisors. “There are a million firms that do websites. There are only a few who specialize in advisors. At the end of the day, we trust [those few because] they know our issues,” he says.
A client of Kitces’ firm offers a powerful illustration of how a niche is built. The client was a police officer for 12 years, left the force to go to law school, where he learned how to file worker compensation claims for police officers. The client, trusted by his former colleagues as part of the brotherhood of policeman, “has a business generating $2 million a year in cash. He does every claim in [his] county,” Kitces says. “You work with people whom you trust, [with] values that are relevant to their world,” he adds.
The key opportunity and simultaneous threat that Kitces sees for advisors seeking to build and defend a business is the way consumers today are using the Internet’s search capabilities. “In a world of search that Google is making very easy to deliver to us, you don’t work with whoever was referred to you. You work with whoever is best in the country,” Kitces says.
“That becomes an opportunity for advisors who are clearly specialized to begin to develop a national business. [But] a lot of advisors would not be competitive if someone types 'who is the best advisor in my town,'” he adds.
“It will change who’s a winner and who’s a loser. Firms with a clear niche or specialization will do well. Firms that are large and have a strong local presence will still be effective. Firms that can’t grow to regional dominance will be able to generate only a moderate level of business. We’ll see advisors who are small stuck being small. The rich will get richer and the poor will be stuck poor. And the primary way to get from poor to rich will be to develop a niche,” Kitces says.