In the first part of this series of blogs—The Biggest Trap Advisors Face When Marketing Themselves—I suggested why widening your client prospect net may be self-defeating, resulting in a lower close rate. In this blog, the second and final in the series, I’ll explore why that's the case, and how you can find a path out of the wider net trap.
So what’s the path out of the wider net trap? To understand the way out, it’s first necessary to better understand why the wider-net marketing approach is so ineffective at converting prospects into clients in the first place.
The fundamental issue with the wider net problem is that by doing everything for everyone, the advisor is not uniquely differentiated as being the best at anything for anyone. For instance, imagine a world with five advisors: the first specializes in doctors, the second specializes in entrepreneurs, the third specializes in teachers, and the fourth and fifth are generalists who will do anything for anyone.
Now imagine what happens when a doctor who needs a financial advisor begins the process of searching for one. The doctor will likely interview three of the advisors—the one that specializes in doctors, and the two generalists, since it doesn’t make sense for the doctor to see advisors who specialize in teachers or entrepreneurs.
At the end of the process of interviewing advisors, which of the advisors will have the most credibility for being able to solve the doctor’s problems? Which is most likely to have worked with other doctors the prospect knows and trusts for referrals/references? And who’s most likely to win the doctor’s business: the advisor who specializes in the precise needs of that doctor, or the two generalists who do anything/everything for anyone/everyone? The answer seems pretty clear: the advisor who specializes in doctors is going to win over the overwhelming majority of doctors as clients, compared to the other two.
Now imagine that an entrepreneur begins the search for a financial advisor. The entrepreneur will likely interview three of the advisors—the one that specializes in entrepreneurs, and the two generalists, as clearly it doesn’t make sense for the entrepreneur to see advisors who specialize in teachers or doctors. At the end of the process of interviewing advisors, which of the advisors will have the most credibility for being able to solve the entrepreneur’s problems? Which is most likely to have worked with other entrepreneurs the prospect knows and trusts for referrals/references? And who’s most likely to win the entrepreneur’s business: the advisor who specializes in the precise needs of that entrepreneur, or the two generalists who do anything/everything for anyone/everyone?
The answer again is pretty clear: the advisor who specializes in entrepreneurs is going to win over the overwhelming majority of entrepreneurs, compared to the other two.
Now imagine that a teacher begins the search for a financial advisor. The teacher will likely interview three of the advisors—the one that specializes in teachers, and the two generalists, as clearly it doesn’t make sense for the teacher to see advisors who specialize in entrepreneurs or doctors. And once again, the likely outcome of this process is clear: the advisor who specializes in teachers is overwhelmingly likely to win the prospective client’s business.
The end result of this process: by casting the net wider and wider, the generalist advisors have more and more prospect meetings, but it simply leads them to lose out on more and more business to other advisors that are perceived to be more specialized, trustworthy, competent, expert, and capable of solving each particular client’s problems. Note that in the end, each of the specialists had one meeting and got one client, while the generalists each had 3 meetings and no clients. The generalists worked drastically harder doing more prospecting for clients, with drastically inferior results.
Sure, in the real world the generalist advisors can and do still win a client here and there, since not every potential client has a specialist who serves them in the first place, but that would clearly be an uphill battle. And as more advisors become specialists over time, the pool of prospective clients who don’t have a specialist serving them shrinks. If the advisor responds by trying to cast the net wider, the paradoxical end result will just be an increase in prospective client meetings but not an increase in new clients, as the generalist advisor loses out to competition that is more targeted, more specialized and more likely to be perceived by the prospective client as the ideal solution.
Crafting a Niche
So how does the advisor escape from the paradoxical trap of the wider net? Simply put, by turning around 180 degrees and moving in the opposite direction, with a goal to become more specific, specialized and focused. The goal is to spend less time in meetings with prospective clients, but become so focused that the advisor wins the overwhelming majority of the prospects that are seen, because now the advisor is the specialist with the best solution that attracts clients away from the generalists.
In other words, this is why the movement towards specialization and having a “niche” matters so much. In a world where just being a financial planner was a differentiator—as was the case for the past several decades—the mere fact that the advisor could credibly claim to offer the service was sufficient.
In today’s marketplace, where the number of financial planners is drastically higher, differentiation is being pushed to the next stage. For consumers, it’s no longer just about getting a financial planner, but a financial planner who’s specialized enough to solve my personal needs and problems. The age of the generalist is coming to an end; the age of the specialist has begun.
It's worth noting that yes, you can still “specialize” in being a generalist. The model exists in other professions, like doctors who are general practitioners. But remember in the medical world, the generalists typically earn less than the specialists, and have been under pressure for years. If they succeed, they do so in part because they specialize in being a generalist: someone who can provide an initial review of the situation, and refer the patient out to the necessary specialists, which in turn means the business model for generalists would likely resemble a simple, low-cost fee-for-service model that virtually always ends in a referral to another (higher priced and more specialized) advisor, which may not be an appealing business model future for today's generalists!
And bear in mind as well, even that generalist position for doctors only works in part because the medical system is increasingly subsidizing the cost of seeing a general practitioner for a regular checkup (i.e., low co-pays or no payment required at all for an annual check-up), because the insurers have found preventive care is less expensive for them in the long run.
In other words, one might say that the primary reason general practitioners in medicine remain successful is because insurers are trying to get patients to use them for a lower price rather than see a specialist at a higher price. Which doesn’t exactly paint the most bullish picture for the career of the general (financial advisor) practitioner, especially when there is no insurance coverage to steer consumers in their direction as a first step.
Getting From Generalist to Specialist
For the advisor who’s starting a practice from scratch, the natural implication of this evolution is to recognize that, from the outset, starting to craft a niche is probably a very good idea. No, that doesn’t mean the new practitioner has to turn down every prospective client who doesn’t fit the niche as they try to build their business; when starting out, any new client and business revenue is often crucial. But the point is that, done well, there frankly shouldn’t be very many non-niche prospects and referrals in the first place. The new practitioner should recognize that spending time with prospective clients outside the niche is likely to have a much lower success rate. While it’s good to get any clients possible when starting out, be careful not to waste too much time meeting with prospective clients whose business you’re not realistically going to win in the first place…especially when that time could be better spent building relationships in your niche instead!
For established advisors who already have some client base, but would like to grow it further and are struggling to do so, the options are more plentiful. Advisors in this position have a choice: to point the practice in a new direction towards a new target niche, or to look at the existing client base where there may already be a partial niche, and steer the business further down that path.
If you already have a number of entrepreneur clients, and you enjoy working with them, you can expand in that direction. If you have a lot of doctors, or teachers, or executives or workers from a large local company where you know their retirement plan and employee benefits cold, you can expand one of those. The business doesn’t have to be reinvented from scratch (unless you wish to do so); it can simply be tweaked and adjusted in a direction where there’s already been some success, to build more.
As with the new advisor, this doesn’t mean the established advisor will automatically turn away any other referrals and business opportunities that come along. But again, if the practice is doing a good job focusing on the niche, most or all of the prospective clients who get referred should be in the niche anyway, and with a much higher close ratio than the non-niche referrals.
The bottom line, though, is simply this: as financial planning continues to grow, just being a financial planner is no longer the differentiator it once was.
Instead, advisors who want to grow and succeed from here must differentiate themselves further, by demonstrating to a certain target clientele why that advisor is truly more focused, more specialized and more capable than the competition. The only way to do that is to craft a niche accordingly.
Going in the opposite direction, and casting the net wider to deal with struggling growth, will only lead to the paradoxical result of an increase in prospects and activity, but not an increase in new clients. Focusing in on a niche provides an opportunity to work smarter, instead of just working harder.