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Escape the High-Net-Worth Client Trap To Build a Successful Business

StratiFi Technologies Inc

The top 1% of Americans now control over one-third of the nation’s total investable assets. These high-net-worth (HNW) investors are the proverbial golden geese sought by many advisory firms. And why not? More assets per client; and the more you do for them, the stickier the relationship, right?

Despite the appeal, the HNW client chase is not for every advisor. Anyone who deals with the most affluent must provide intensive staff services and that’s more expensive and time-consuming than most advisors realize. Instead, many agile advisors are finding profitable sweet spots by focusing on underserved niche markets, streamlining their operations through technology and outsourcing, and rethinking fee structures.

Carve out a niche

While HNW clients may not be your niche, there are many other markets to target, and it’s worth focusing on one. According to TD Ameritrade’s 2018 Growth by Design report, firms with a specific target market achieve greater rates of growth and profitability than their peers. The median operating profit margins for target-focused firms was 18% greater, and median annual client growth was 35% greater.

Choosing a niche market can be difficult, however, particularly if you already have a diverse client book. But the tradeoffs are noteworthy when you pick a niche.

Investors between the ages of 35 and 44 make up 22% of the affluent population but only 11% percent of advisors’ client base. This is a clear investment opportunity for younger advisors who can relate to the financial needs and life stage of their clients. A quick glance through InvestmentNews’ Top 40 Under 40 or Crain’s Wealth Financial Advisors Under 40 lists confirms the success of this strategy, with many top advisors focused on serving clients in their late 20s to 40s.

The top young advisor lists also include those who have found success by targeting underserved markets including women, the LGBTQ community, second-generation immigrants, and minority small-business owners.

Extend via technology

Rather than viewing technology, and the rise of digital investment platforms as a threat to their business, successful advisory firms use technology to streamline operations and create scale needed to serve a large client base.

The investment begins behind the scenes, with integrated online platforms that allow advisors to centrally manage and trade accounts and take care of back-office tasks like billing and reporting. According to Joshua Pace, president and chief executive of independent RIA custodian Trust Company of America, a good platform should offer multiple strategies per account and could exponentially improve your back-office-to-account ratio.

The rise of digital wealth or “robo-advisory” tools has also allowed advisors to simplify their client’s investment management. Betterment, one of the earliest entrants to the digital wealth industry, offers a white-label version for advisors that provides automated trading and investment solutions using globally diversified, low-cost exchange-traded fund  portfolios. Schwab and Fidelity, among other custodians, have also launched similar services. When implemented correctly, any of these model-based trading platforms enable advisors to manage hundreds of client accounts in minutes, not hours or days.

Digital and social media platforms are also increasingly used to improve client communication. According to a 2015 study by Accenture, 77% of advisors say clients want more communication channels, yet only 62% of advisors use social media when interacting with clients. Morgan Stanley has a dedicated web-based financial education program called Morgan Stanley Financially Fit, which gives their advisors a digital curriculum to share with clients and their families. Consider the impact of utilizing this content (or leveraging your own expertise) in a monthly educational podcast on your website, LinkedIn, Facebook, and Twitter accounts. Workable Wealth founder (and Top 40 under 40 recipient) Mary Beth Storjohann (@marybstorj) has nearly 6,000 followers of her Twitter account, which she uses to share personal and professional financial advice.

Improvements in video conferencing have also allowed advisors to keep their on-site premises lean. Whether you choose to have a 100% virtual practice or share office space with other professionals, the ability to instantly connect and collaborate with peers, affiliates, and clients via technology is a huge advantage.

Embrace new pricing structures

If the bulk of your clients are in the accrual phase of their life, a typical asset-based fee structure might not be possible (or at the very least will prove to be a hard sell versus cheaper digital wealth offerings). Savvy, smaller advisory firms have begun offering their services in a variety of transparent options including upfront packages, a-la-carte services, and regular consulting payments that clients can budget into their monthly cash flow.

Katie Brewer, CFP® and founder of Your Richest Life, developed a monthly fee-only model for her practice designed to appeal to her largely Gen X and Gen Y clients. She charges $1,200 to $6,000 up front for professionals seeking ongoing financial planning  (depending on the scope, complexity, and needs of the client) and then an ongoing $100 to $500 monthly fee.

Simonet Financial Group provides a menu of service offerings to prospective clients, ranging from one-time investment management consultations to annual retainer fees. Annual packages range from $5,500, which covers an initial plan and annual review plus five hours’ worth of advice, to $14,500, which includes more than 20 hours of planning and specialized services including charitable planning and tax plan coordination.

Outsource beyond technology

Smart advisors are making the “gig economy” work for them, with some 60% of firms relying on some sort of outsourcing, according to the 2017 FA Insight Study of Advisory Firms. For smaller advisors this is an opportune way to compete with some services typically found at larger firms, including tax preparation, estate planning, insurance, and elder care planning, among others.

Freelance creative matchmaking services like Upwork, Freelancer, and LinkedIn Profinder, provide advisors with professional designers for short-term website updates, ongoing digital marketing help, or full-time contract-based writers to round out blog content or provide regular social media posts.

Wherever your client search lands you, the reality is that scale is no longer a decided competitive advantage. Smaller, agile firms that embrace technology and the dynamics of the marketplace will continue to succeed.

“The future of financial planning isn’t about whether the ‘small’ firms will win or the ‘big’ firms will win. There is room for both to succeed, as the biggest advisory firms grow bigger with their size and scale and the smallest advisory firms grow more profitable.” Michael Kitces