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Smaller Firms Must Specialize if They Want to Grow: Report

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Small financial advisory firms owned and operated by their founders are being squeezed by the increasing number of mega firms with $500 million or more in assets on the one hand and the expanded presence of digital advisors on the other. If the stock market rout continues, they, like all other advisors depending on asset-based fees, will also be hurting from a decline in asset values.

These smaller advisory firms, popularly known as “lifestyle firms,” have “to have scale or specialization to compete,” says John Anderson, head of practice management at SEI, a third-party asset management platform that has produced a series of reports focusing on the future of the advisory industry in 2030 in association with the Financial Planning Association.

(Related: Financial Advisors Are Failing to Plan for the Future: Study)

The second report in the series, Growth by Specialization, notes that over the next decade these firms “must find a way to differentiate themselves and create personalized and fulfilling experiences for their clients to compete in what will be a very competitive advisor business.”

“If you want to succeed as an individual practitioner, you have got to have a specialty,” says Anderson.

The SEI/FPA report focuses on in-depth interviews with several individual owners of independent advisory firms, each choosing a different niche in order to thrive, but all having a well thought-out plan for growth along with marketing plans that highlight their expertise.

One firm, Vida Private Wealth, is dedicated to “very high net worth families with $10 million or more in net worth focusing on “financial life planning” and  “investing with a purpose” — environmental, social, governance and impact focused investing.

Gen Y Planning is a virtual all-female financial planning firm that serves about 100 millennial clients. WH Cornerstone, co-founded by a married couple, focuses on financial planning for widows. Guiding Wealth Management is a traditional financial planning and asset management firm with an affiliate, Live Wealthy Now, that focuses exclusively on financial education, which    helps generate leads for its sister operation. And Simone Zajac Wealth Management Group is expert in equity compensation and employee stock options, a prime interest for clients in the technology industry.

All five firms not only target a specific client niche but also use social media to market themselves as experts for those niche markets.

The SEI/FPA paper provides other tips for how smaller owner-operated firms can grow their business:

  • Develop a multifaceted market program to attract new clients. The report recommends that advisors watch Simon Sinek’s TED talk Start With Why.
  • Consider adding services your target market needs now or may need in the future, such as expertise in Medicare and long-term care for pre-retirees and boomers and student loan debt management for Gen Xers.
  • Capitalize on technology beyond providing efficiencies for firm operations by adding social media management and email marketing platforms that can integrate with your CRM, or mobile apps and chatbots to enhance customers’ experience.
  • Enhance your digital and social presence for current and prospective clients and news media by assessing and retooling your website for search engine optimization, hiring a social media manager and providing media commentary on personal finance topics.

Sophia Bera, the CEO and founder of Gen Y Planning, attributes most of her firm’s growth to SEO and Google searches. Daniel Zajac, partner at Simone Zajac Wealth Management Group, says 75% of the new contacts he engaged in last year were the direct result of social media efforts.

Another key recommendation from the SEI/FPA report: Don’t ignore the next generation. They are the future and will be the lifeblood of the business as more boomers retire and draw down their assets. Generations X and Y now represent 21% of wealth management clients, and their average assets are growing about 75% faster than those of baby boomers, according to the report.

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