Kitces: Why Niche Marketing Will Make or Break Advisors

Indeed, Kitces is a big proponent of niche marketing. "Ultimately, we find the advisors who are really doing well have some kind of clearly defined niche that makes them easily identifiable and easily referable. It's sort of counter-intuitive. Most people don't say 'Hey, to do more business, I'm gonna work with fewer people' [by narrowing the field of clients they serve]."

Kitces illustrates this concept by pointing out that almost all advisors have their websites designed by web design companies specializing in financial advisors. "There are a million firms that do websites. There are only a few who specialize in advisors. At the end of the day, we trust [those few because] they know our issues," he says. "If you do everything for everyone, no one calls. They don't understand why you're relevant to them," he adds.

A client of Kitces' firm offers a powerful illustration of how a niche is built. The client was a police officer for 12 years, left the force to go to law school, where he learned how to file worker compensation claims for police officers. The client, trusted by his former colleagues as part of the brotherhood of policeman, "has a business generating $2 million a year in cash. He does every claim in [his] county," Kitces says. "You work with people whom you trust, [with] values that are relevant to their world," he adds.

The key opportunity and simultaneous threat that Kitces sees for advisors seeking to build and defend a business is the way consumers today are using the Internet's search capabilities. "In a world of search that Google is making very easy to deliver to us, you don't work with whoever was referred to you. You work with whoever is best in the country," Kitces says.

"That becomes an opportunity for advisors who are clearly specialized to begin to develop a national business. [But] a lot of advisors would not be competitive if someone types 'who is the best advisor in my town,'" he adds.

"It will change who's a winner and who's a loser. Firms with a clear niche or specialization will do well. Firms that are large and have a strong local presence will still be effective. Firms that can't grow to regional dominance will be able to generate only a moderate level of business. We'll see advisors who are small stuck being small. The rich will get richer and the poor will be stuck poor. And the primary way to get from poor to rich will be to develop a niche," Kitces says.