August 20, 2013

How to Find a New Differentiator for Your Practice

In the first part of our post, we discussed the threat of increasing competition from other financial planners and the increasing lack of differentiation between advisors with different business models (like the wirehouses) but who have similar qualifications. Now we’ll discuss what to do about it.

So what's the solution in a world where financial planners and their services are increasingly similar to each other? It's time for more advisors to really establish a true Unique Value Proposition.

Yes, the UVP marketing buzzword has been around for a long time, but few advisors seem to have truly internalized its point: if you want to grow your business, you really have to demonstrate the unique value you bring to the table. Just being a financial advisor with credentials and years of experience developing customized, individual financial plans for the needs of their clients just doesn't cut it. That's not an end point for differentiation anymore; now it's just table stakes, or the minimum to get a foot in the client's door.

So what is truly unique in the world of financial planning? Since the service of financial planning itself is defined by a recognized process and practice standards, it's difficult to be unique with respect to the delivery of financial planning (though ultimately providing a genuinely unique client experience could be a differentiator). Instead, the key to differentiating is the kind of expertise you have, or the kind of clientele you work with. In other words, it's all about having a niche.

The reason why having a niche matters more than ever in this environment is that it creates an opportunity to possess something at which you are unique and the undisputed "best" to serve your target group of clients. Realistically, you're not going to be "the best" at financial planning; there's too much competition. While you might be "the best" in your local geographic area, the reality is that geography as a niche will be less and less relevant in the future, as the capabilities grow for online web-based (and especially, video-based) service models and digital search makes it easier for prospective clients to find the best advisors.

If you want to be the best at planning for new parent financesfinancially wise women or some other specific, narrow niche, you really can deliver a unique value and service that has no competition by choosing to target a clientele that no one else targets. 

Fortunately, in the digital age it will be increasingly feasible to build a narrow niche with a broad national clientele, relying on the power of search engines to help those clients find you, the one best expert to help solve their problems.

Do Niches Make Your Business Smaller or Bigger?

It seems there's a common point of fear around focusing on a niche. It typically goes something like this: "I'm struggling enough to grow my business now, and can't seem to find enough new clients to meet my goals. How on earth could I be better off by limiting my pool of potential clientele to a small niche?" Yet to raise this objection misses the fundamental point: being everything to everyone means you're not unique to anyone, which means while you could do business with everyone, there's hardly anyone who wants to work with you amidst the sea of comparable other advisors out there.

On the other hand, having a clear niche means, at least for that subset of clientele, you are the one true unique best solution for their needs. In other words, the pie might be smaller, but you can have the whole pie, because you're genuinely differentiated as the best provider of solutions for anyone tied to that pie, which can be far more successful than having an infinitesimally small slice of the large pie.

For instance, look at the website of Dave Grant of Finance for Teachers and the introductory video there. If you were a teacher, who would you realistically choose? Another experienced, credentialed, we-do-everything-for-everyone advisor, or Dave?

Ultimately, this is the whole point of differentiation. You can't focus on being different than your competition while simultaneously undermining your own differentiator by insisting you can serve everyone equally well. It's not realistically feasible, and prospective clients won't believe and buy into it anyway. Whether it's a teacher or an eye doctor, if one has to choose between three advisors, where Advisor A does everything for everyone, Advisor B does everything for everyone, and Advisor C specializes in teachers or ophthalmologists or whatever group, what are the odds that the individual picks anyone besides Advisor C? Almost nil.

So what happens in the long run? A few mega firms that have the brand recognition and credibility to really be everything to everyone get some clients, and a long list of "long tail" niches eventually picks off every remaining new client that's available, until there are none left for the generalist.

The point is not to take such a focus on your niche that you turn away every other client who doesn't fit the niche. The point is to have such a clear point of differentiation that the only people who seek you out are those people in your niche, as you're so clearly the best fit for them that they're attracted to your firm and wouldn't possibly want to work with another advisor. No other clientele is interested simply because you're clearly not for them. Arguably, if you're that focused on a particular type of client, you shouldn't be very good at servicing others outside your niche anyway.

In any event, the bottom line is that as fiduciary, advanced credentials like the CFP certification, and financial planning become increasingly mainstream—a trend that appears unlikely to revert anytime soon—the profession seems to be crossing a point of no return, where it's no longer viable to be a generalist for everyone and just let the fact that you're an experienced certified financial planner be your differentiator.

Instead, it will become increasingly necessary for financial planning professionals to have a niche to survive and thrive.

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