The trend among many success-ful financial services professionals is to become “specialists” in specific client segments or product niches. And there are a couple of compelling reasons why clients seek out professionals who specialize in serving people like them.

(In last month’s column, I wrote about that trend and suggested that, as competition increases, many advisors will follow this path. If you missed that column, you can find it at www.investmentexecutive.com. )

The first reason is the principle of “safety in numbers.” I recently had a conversation with a client about the absence of a single recognized brand among high net-worth Canadian investors, akin to what Merrill Lynch & Co. Inc. and Citigroup have achieved in the U.S. among Americans with US$1 million to US$10 million in investible assets.

What we have in Canada is not one national high net-worth brand but, rather, a series of regional brands — Phillips Hager & North Investment Management Ltd. in Vancouver, Bissett & Associates Investment Management Ltd. in Calgary, Jarislowsky Fraser Ltd. in Montreal, Seamark Asset Management Ltd. in Halifax and, in Toronto, a number of firms that have strong presence among different ethnic communities.

What leads to this phenomenon?

In part, it’s the local presence of the principals of these firms in their home communities. But more important than local profile, each of these firms has achieved critical mass in their local market and become the “safe choice” for affluent clients.

For many clients, selecting a financial advisor is a high-stress decision with which they struggle. There is, after all, no tangible product and past performance records are obscure. For many clients, the decision is a leap of faith. That’s why, when you are competing for a prospect, very often your No. 1 priority is reducing the risk for that client of choosing to work with you.

When one firm or one advisor comes up several times in the course of conversations with people whom potential clients know and trust, that firm or that advisor becomes the safe choice.

Malcolm Gladwell talks about this in his best-selling book, The Tipping Point, in which he discusses how word of mouth builds slowly and then, when critical mass is reached, rapid growth kicks in. By focusing on a specific community that interacts and talks to each other, advisors increase the chances of becoming the safe choice for that client group.

I was talking to a successful advisor who had had this effect work for him. Through his normal prospecting, he brought a Canadian Tire franchisee in his community on board as a client. Through determined efforts among other franchisees, a year later he brought on a second client from within this group. A year after that, he had three more.

His commentary was interesting. Bringing the first Canadian Tire franchisee on board was an excruciatingly difficult process and took more than three years; on a couple of occasions, he came close to giving up. The second Canadian Tire franchisee, while still challenging, was significantly easier. And after he had acquired these two clients in this segment, each additional client became incrementally easier to bring on board. In effect, the “tipping point effect” had kicked in for him — and he had achieved “word of mouth” and “safe choice” status in a community of potential high net-worth clients.

So, the first reason to focus your prospecting within a narrow client community is to increase the likelihood of getting word of mouth working for you and achieving safe choice positioning.

The second reason is that by concentrating your client base, you can focus on the unique needs this group has and achieve both real and perceived differentiation on the quality of advice you’re able to provide.

I recently talked to a dentist who had moved into a new community to be closer to her husband’s parents, who had health issues. In doing so, she had purchased the practice of a dentist who was retiring.

As part of relocating, she had to select a financial advisor with whom to work. By asking people she had met (including her husband’s family and the dentist whose practice she had bought), she arranged exploratory meetings with three advisors.

All three appeared interested, capable and professional — and she liked and could see herself working with all of them. (In our research with clients who have selected new advisors, a common refrain relates to the difficulty of choosing from among several attractive alternatives.)

@page_break@In this case, the dentist’s task was made easier because two of the three advisors had traditional, broadly based practices in which they dealt with a diverse array of clients. The third, however, had a specific concentration among independently employed professionals — half of her client base consists of doctors, lawyers and dentists. As a result, this advisor is up to speed on the unique tax issues that professionals face. In the meeting, for example, this advisor asked whether the dentist had explored a professional corporation in which her university-age children would become shareholders.

This advisor was also familiar with the insurance coverage offered by the Canadian Dental Association and was able to discuss two instances in which dentists with whom she works needed to supplement this coverage. She said she is happy to conduct annual reviews at her clients’ offices and kept evening hours one day a week for clients who had difficulty meeting during the day.

At the end of the meeting, the advisor invited the dentist to a dinner meeting that she was hosting the following month; the speaker was a prominent human resources consultant who would talk about the best practices in hiring and keeping staff.

Ultimately, the choice for this dentist was fairly easy. By targeting a focused client community, the advisor had developed both a perceived and a real advantage in how effectively she would be able to meet this dentist’s needs.

This is not a reflection on the integrity or capability of the other advisors — in all likelihood, they would have done a perfectly adequate job. As I said last month, generalists do just fine as long as they have to compete only with other generalists. But they run into problems when they’re up against someone who is seen as a specialist in a prospect’s unique needs and problems.

The advisor in this example had made two critical decisions.

First, she had selected a specific community on which to concentrate and then invested the time to get up to speed on the key issues affecting those prospective clients. As well, she had altered the way she structured her day in order to meet professional clients on terms that are convenient to them. In effect, she had created a differentiated value proposition for a specific client group.

Second, having built a superior value proposition for a particular client community, she focused her prospecting efforts within this group. She made a point of having clients invite her along to meetings of the local associations for doctors, dentists and lawyers. She sought out opportunities to write for the newsletters for these associations and to speak to breakfast or luncheon meetings. And she made a point of creating a prospecting component to her client education events by choosing topics that are hot buttons for professionals and extending invitations to prospects whom she was courting.

Next month, I’ll conclude this series by talking about the things you need to consider if you are interested in making the power of specialization work in your business. IE



Dan Richards, president of Strategic Imperatives Ltd., can be reached at richards@getkeepclients.com. For other columns in this series, go to www.investmentexecutive.com.