It may seem like a contradiction, but retirement savers and other investors who manage their own portfolios can make great clients.
In fact, in the experience of Nick Stuller, the author and CEO of the advisor-client matchmaking platform BenFi, this client niche is one of the most overlooked and underrated market segments in the wealth management industry today.
“There are millions of these investors out there in the market with a significant amount of wealth, and you may be surprised by how interested they are in working with financial advisors,” Stuller said. “They don’t necessarily want someone to manage their money. Instead, they want an objective expert who they can bounce ideas off of. They can make great clients and fuel a surprising amount of growth.”
Stuller shared this insight during a recent webcast hosted by Mark Elzweig, head of Mark Elzweig Co., a New York-based executive recruiting firm that specializes in helping financial advisors find the right career paths. As both experts discussed, growth-focused advisors often talk about the desire to move “up market” and win highly affluent clients.
“That’s an appealing idea, but it’s also difficult to achieve,” Stuller said. “Breaking into that market requires a focused approach and quite literally years of effort. It’s worth the investment, I believe, but it’s a major commitment.”
In Stuller’s experience, the best way for advisors to move up market in this fashion is to get involved in their local philanthropic community — and it has to be genuine.
“When advisors ask me how to do this, I tell them to pick a cause they care about genuinely and get involved, whether that is feeding the hungry, environmental causes or even religiously affiliated philanthropy,” Stuller said. “Highly affluent people are often very passionate about one cause or another, and you can build your reputation and credibility by engaging in those causes. You can’t fake it or rush it, though, because people will see right through that.”
An Alternative Approach
In the meantime, Stuller suggested, there’s a lot of potential growth to be tapped in serving self-directed investors, though the approach has to be tailored.
“Given that you aren’t directly managing their money, these clients may not be willing to pay a traditional asset-based fee, and the commission model may not make much sense, either,” Stuller said. “There are other options, though, including either an annual or monthly retainer, for example. Project-based fees are also a consideration. Overall, you can think differently about compensation in this client segment because they are going to be less work to serve.”
As Stuller emphasized, these clients can also be tremendous referral sources — both for other self-directed investors but also for clients looking for more hands-on services from an advisor.
“Self-directed investors who have amassed substantial wealth are generally going to be pretty successful people,” he pointed out. “They’re typically going to be successful engineers, architects, dentists, lawyers, etc. Most importantly, they are known to be successful as professionals and investors in their own social circles.”
For that reason, these types of potential clients are often asked by their own peers, friends and colleagues where they get their investment management advice.
“If the answer is you, that’s a very powerful potential referral source,” Stuller said.
Building a Niche
Another question that Stuller hears frequently from younger advisors or new entrants into the advisory profession is how to define a niche. Perhaps they have built a decent book of business, but they’re struggling to define a strategy for reaching the next level.
“First of all, I would look at your client base as it exists today,” Stuller advised. “If you've been in the industry for more than a few years, chances are you have some degree of client concentration that you can build upon. Look at your client base and try to understand everything about it in terms of occupations, income levels, geography — breaking it down by anything you can think of and diagnose.”
Advisors are often surprised by what they find after running this exercise, Stuller said, but if they find their practice really doesn’t have a natural concentration, there are strategies to consider.
“If you’re in this situation, ask yourself, what do you feel that you do well as an advisor?” Stuller suggested. “What's your unique life experience and how can you bring that to bear for different types of clients?”
Stuller shared the anecdote of working with one young advisor who was in his mid-20s, whose own father had operated a deli for many years in central New Jersey.
“He had been working in restaurants since he was like seven or eight years old,” Stuller said. “It hadn’t occurred to him that this expertise could be built into a niche of serving restaurant owners and similar small-business owners. He could tell you exactly how much a cup of coffee cost in central New Jersey and all about the challenges of running a small business. I told him to partner with an older advisor who was looking for a next-gen leader and to make this his niche.”
Of course, Stuller said, one doesn’t necessarily need to define a single narrow niche and reject all other potential clients. The reality is that highly successful advisors carve out a handful of niches and steadily build a reputation as problem solvers for their clients, regardless of their exact profession or financial situation.
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