By specializing in one or more narrowly defined customer segments, you are essentially choosing to be a bigger fish in a smaller pond, rather than a small fish in a much larger ocean of potential clients.

Some advisors have concerns about narrowing the focus of the clients they serve, feeling that this limits their potential. Certainly, there are trade-offs in choosing to focus your practice.

However, advisors report that the negatives are more than offset by the positives, such as the ability to gain in-depth knowledge of the needs of the clients with whom they deal and to serve them better, which in turn results in increased loyalty and referrals. Also, prospecting becomes easier. By focusing your business, you develop a competitive advantage in your offering; as you develop a critical mass of clients in a segment, you build word of mouth and momentum and become the safe choice.

This gives you a competitive advantage within that client segment and reduces the role of price in attracting and retaining clients. Ask any research analyst which he or she prefers: a company with a very small share and an undifferentiated value proposition in a big market, or one with a leading share and a compelling value proposition in a smaller market. Everything else being equal, analysts will pick the market leader — and that’s what we’re talking about here: developing a compelling value proposition that will lead to leadership within a narrowly defined market.

So, how do you shift from a broad-based generalist practice to one that is focused on one or two client segments?

There are three steps in making this shift. First, select the client communities in which you wish to specialize. Second, orient your practice to meet the needs of the community you select. Finally, focus on getting the word out and building visibility within this community.

There are five factors to consider in selecting a client group on which to focus:

> Your ability to empathize with and relate to this group. Do you like dealing with them?

> Your base of existing clients. Do you have at least two or three clients from this group?

> The target group’s cohesiveness. Do members of this group see themselves as having specific shared needs?

> The group’s potential. Do its members have sufficient financial assets around which you can build your business?

> Is there competitive room in which you can operate, or has the group already been heavily prospected by incumbent advisors?

As a starting point, put together a list of possible target groups and rank them from zero to five on each of these dimensions, to a maximum overall score of 25. This will give you a first look at how feasible it is to focus on each group.

A word of caution: there is a temptation to define a target clientele broadly. After all, the broader the group you select, in theory, the greater the potential. The risk, of course, is that if you go too wide, you negate the advantages of specialization. The advisors who have succeeded have done so precisely because they cast the net narrowly.

One example is an advisor who initially targeted senior executives in public companies. His business started booming only after he narrowed his attention to managers with large unrealized gains from stock options and developed specific expertise in the problems of concentration risk and in tax and disclosure issues.

Another example lies in advisors who have focused on business owners, but found themselves running into many other advisors who had selected the same group. To differentiate, one advisor became an expert in group RRSPs. Another narrowed his focus further to owners of automobile dealerships and auto-related franchisees. A third shifted his attention to a mid-sized community about 90 minutes away, still big enough to be attractive but with much less local competition.

Once you’ve selected a target group, you need to develop a deep understanding of that group’s needs, with a view to reshaping your practice to serve it better than any generalist advisor possibly could. Start by talking to your clients in this group, with the goal of upgrading your understanding of the issues that matter to them. Beyond that, you may want to get referrals to do information interviews among other members of that constituency, talk to the heads of industry associations or meet with professional advisors and suppliers to this community who are in non-competitive situations.

@page_break@In some cases, you may need to upgrade your expertise. That doesn’t mean you need to become an expert on tax and legal issues for your community — you’re not in business to compete with accountants and lawyers. But it does mean you have to be knowledgeable about the issues your constituency faces.

In other instances, you may need to change your office staffing, layout, hours and style of operation. If you’re serving seniors, your office will have a different look and feel than if you’re dealing with clients in their 40s who are in the early stages of retirement planning; dealing with busy professionals or harried business owners will entail still another style of operation. Remember, part of your objective is to let whatever client group you’re dealing with know that you concentrate on their needs and, as a result, are able to serve them.

Here’s an example of how the group you select can affect your approach. Let’s suppose that two advisors from the same firm and in the same community decide to run a workshop for their clients on opportunities to use insurance strategies to save on taxes. One advisor is targeting seniors, while the other is focusing on business owners grappling with succession planning issues.

While insurance strategies will be at the core of both workshops and the speaker might be the same, just about everything else will be different: the topics, the look and feel of the invitations, where and when the workshops are held, how long they run, the level of detail and the nature of the handouts. To be effective, each advisor has to tailor the event to the specific needs and circumstances of the client group with which he or she is dealing.

The final step is to get the word out.

There are lots of ways to do this. Join the group’s local industry association and attend meetings. Build credibility and visibility by writing for that industry’s publications or speaking to local chapters.

Start developing a database of members of this group who are prospects and put together a marketing campaign to target them. This could include sending copies of articles, a summary of your remarks to a local association or invitations to a seminar you’re offering members of this group.

You could also look for other professionals who serve the group and suggest joint marketing initiatives or exchange referrals.

Or you could simply pick up the phone and cold-call members of the group. (After a while, you’ll have built enough of a reputation that the call will be lukewarm rather than ice-cold.) When calling, you might start with the magic words: “I specialize in the unique needs of…” and then specify the constituency with whom you’re dealing. Once you have built some momentum, you can go on to say, “Among the clients who have given me permission to mention that we work together are so-and-so and so-and-so.”

Consider making the transition to a specialized practice in stages. Start by carving out a defined time each week (say, Friday mornings). Set that time aside in your calendar to do research, skills upgrading, networking and profile-building. As you begin to acquire clients, you’ll naturally be doing the things that are required to consolidate your position as the best resource for clients in the target group or groups you’ve selected. IE



Dan Richards, president of Strategic Imperatives Ltd., can be reached at richards@getkeepclients.com. This is the third of three on specialization. For other columns in this series, go to www.investmentexecutive.com.