What is a niche market and what is its relevance to ETFs in particular?
Whether they do it consciously or unconsciously, every financial advisor defines a target market—the clients they want to serve—for their business. In the beginning, a target market is usually defined as simply “anyone who meets my minimum fee” or “anyone who lives within 15 miles of my office.”
Usually, after a few years, advisors will narrow in on who they best serve and will develop an ideal client profile. This profile usually looks something like this: “Couples within 10 years of retirement who are professionals or executives of a large employer, have $1 million+ in investable assets, and are nice people and willing to delegate.”
While this wide-reaching definition will work for many advisors, others will find more success in narrowing their focus even more by selecting a niche market.
What is a niche market?
A niche market refers to a specific subset of potential clients who have similar characteristics and needs. A niche market often requires specialized knowledge or service that may not be competently offered by the competition.
You want a niche that is sufficient in size to be profitable but limited enough that your specialization allows you to stand out from the competition.
Some examples of niche markets include:
- Occupations: Physicians, real estate professionals, airline pilots, business owners
- Industries: Biotech, oil and gas
- Employers: United Airlines, Kaiser, Verizon
- Life transitions: Getting divorced, recently widowed, sale of a business
You may ask yourself, “If defining a niche market is limiting potential business, why would I engage in niche marketing?” The answer is simple: Niche-marketing dollars and hours are more wisely spent and produce more effective results than mass marketing. Specifically, focusing on a niche market provides five key benefits. Here they are.
You stand out from the competition
Investors have many options when it comes to choosing a financial advisor, and it can be difficult for them to understand the differences among advisors. When you focus on a niche and specialize in working with people just like your prospect, it’s easier for that prospect to see the difference and understand the unique value you bring, thereby increasing your close rate with qualified prospects.
You increase word-of-mouth marketing
When you successfully build your business around a niche market, you become a part of that community. Prospects will begin telling you they’ve known your name for years or they got your name from so-and-so. Other people will begin marketing on your behalf. Word-of-mouth marketing is one of the most effective and least expensive forms of marketing available to you.
You spend less time and money on marketing
When you engage in niche marketing, you are focused on a limited set of prospects. As a result, the resources required to reach this segment are less than when targeting a larger audience. You will find that your marketing message and efforts are more effective, so marketing requires less effort and bandwidth on your part.
You work only with ideal clients
By focusing on a niche, you will be able to clearly define and strictly adhere to qualifying criteria. Because you are a specialist, you have a legitimate reason to say “no” to non-ideal clients. Just as someone wouldn’t expect to work with an oncologist to mend a broken leg, someone looking to invest a modest inheritance wouldn’t work with someone specializing in divorce financial planning. The result is that you end up being able to select only the most perfect clients for your firm without the guilt of saying “no” or turning non-ideal business away.
You create efficiencies in your business
vWhen you work with a niche market, you will find that the clients you work with generally face the same set of issues, which are solved by a similar set of solutions. You quickly become an expert in all scenarios presented to you and can create templates and workflows to streamline your service. The ultimate outcome is that you spend less time and money servicing clients and can focus more on other areas of your business or personal life.
While focusing on a niche market is not required to grow a successful financial advisory practice, it can have benefits that you won’t find with a broader focus. By specializing, you can make your marketing more effective, efficient, and enjoyable.
Kristen Luke is President of Kaleido Creative Studio. She will be moderating the panel discussion “Finding Riches in Niches—How Target Marketing Can Empower Growth” at Inside ETFs on Monday, January 27,at 2:10 p.m.