As an advisor, it’s easy to watch the drumbeat of growth in 401k assets and plans without worrying too much about “what’s next?”
However, experts point to niche markets and their importance in creating referrals and loyalty.
How can 401k advisors best target their resources and expertise to capitalize on a particular segment, while also ensuring scalability?
Jairo Gomez says niche markets create a special type of advisor-client connection. As director of retirement plan services for Hanson McClain, he’s seen a “race to the bottom” in terms of who’s cheapest or what they offer; however, a niche market creates trust and loyalty not always seen with traditional clients constantly on the lookout for the next best deal.
Gomez is bilingual, which helped extend his firm’s services into a new market seven years ago that includes not only Hispanic-owned businesses, but also English-speaking company owners who have Hispanic employees/participants.
He estimates that 35 percent of his current business is tied to the Hispanic community. Understanding the niche demographic is critical, despite what an advisor may think he knows going into a particular market, says Gomez.
“It wasn’t a catch-all just because I was a first-generation Hispanic from Colombia who spoke Spanish fluently. Not only are there different dialects between Puerto Rico, Mexico, Spain, etc., these are different cultures, which affect how they approach saving for retirement.”
Gomez points to the wide variation where some cultures may be more educated and comfortable with financial markets. But in other countries, they see corruption in banking and financial institutions, and are therefore understandably wary.
For every demographic, he says an advisor must transition from perceptions to the goal of how to help them save more. For some of his clients, a CPA might have directed them to set up a retirement plan, but the client wasn’t always sure why. So, he starts with determining the POP—or Purpose of Plan.
“The Hispanic community is very good at saving, but many are not fond of government or banking because of experiences in their countries of origin. I had to work to make sure that they feel comfortable with a particular savings vehicle. For instance, credit protection is huge to this community, because it means no one can run off with their money.”
With any niche market, Gomez says it’s critical to recognize “who” they are.
“Whether it’s Hispanics, or LGBT or attorneys… what are their buttons? What concerns them more than anything else?”
Gomez cites the personal touch, since traditional marketing strategies like email webinars often don’t get traction in niche markets because retirement outcomes can be so different.
“In the Hispanic community, a participant might eventually save $50,000 to $100,000 in a retirement account. That’s not considered very substantial for some U.S. workers but for them, they can take that and retire comfortably in their home country.”
Scalability is as true with niche markets as it is with a traditional clientele. Areas such as education, administration, fiduciary and liability are just as important, but advisors may approach them differently based on client interest. However, as long as you have processes and procedures in place, says Gomez, you can replicate everything across the board for any market.
Some industry niches are obvious and solidly in the professional, white-collar arena (think IT and medical practices). But others require a bit more digging, like transportation, leisure and hospitality and construction.
For these areas, as many advisors are aware, the participation rates are often affected by the seasonality and sometimes transitory nature of the work, which disqualifies some workers but still, they’re markets that deserve attention.
“Transportation is rife with inadequate contribution and deferral rates,” says Jamie Linkowski, president of Pittsburgh’s PRIMESolutions and a financial advisor to the industry for more than 30 years.
He says that while truck driving is the No. 1 occupation in 40 states, and in the top three of the remaining 10, its employees have a lower than normal retirement savings rate—just 54 percent, according to ADP’s Retirement Savings Paradigm study.
He notes that it has been “notoriously” lacking in retirement benefits and that participation is consistently low. To illustrate, Linkowski describes what he calls an early “oh no moment” with a truck driver.
“The driver had to quit his job just to access his retirement savings, and we did a root cause analysis,” he says. They found there was a scarcity issue on top of a lack of retirement readiness—a situation they soon discovered was prevalent across the trucking workforce.
He points to general data that shows that 57 percent of Americans don’t have an emergency account and half can’t afford a $400 immediate expenditure.
The result was that an employee “went out of his way to leave his well-paying, middle-class job essentially to access his retirement funds.”
From that point, Linkowski knew it was a problem waiting for a solution, but he also had to better adapt to working with trucking clientele.
“We threw our normal best practices out the window and worked differently. We had to meet them where they worked, and added our own trademark of empathy and personal assistance.”
Linkowski says that while today’s advisors are trying to find the “magic bullet” automation or phone app, driving a truck isn’t conducive to staring at a phone.
Educational outreach is different as well; less about FinTech and more about the emotional connection. Linkowski says for this niche market, it’s not about stocks, bonds and compound interest, but more about debt, short-term savings and taxes.
“Advisors can handle plan design, portfolio design and communication at an institutional level, but they need to recraft the conversation on a personal level. They need to find the right person, right intervention and the right time to interact.”
Linkowski’s approach could very well apply to advising other key industries with similar characteristics:
Construction: 4.5 percent wage and employee growth rate over next five years but just 45 percent of employees who save for retirement;
Leisure and Hospitality: Expected to add 1.3 million jobs in the next decade but only 37 percent of employees who save for retirement.
Serving a niche market pays off, he adds, since “Word travels. New prospects come after us to learn more because they hear things are working.”
Yet niche markets are, of course, not without challenges, which industry researcher and consultant Chip Roame is happy to address.
“Niches suggest access to common clients and prospects with similar needs, and they can often be accessed through their utilization of common media and learning events.”
Most market segments that are defined as “niches,” he observes, “usually have some set of magazines, news sources, conferences or the like that provide a pathway for communication.
“If you want to reach doctors, you need to write articles, get quoted or advertise in magazines read by doctors, or speak at conferences and events that doctors attend.”
Many advisors therefore feel that niche markets can be labor intensive, yet Roame disagrees.
He says that advising members of a niche market can be time efficient because they have similar needs.
For example, he cites one firm’s approach to a particular telecommunications industry segment. The advisor-team studied the specific retirement and benefits plans, and then networked through employee events, making every incremental client easier and less expensive to serve.
“Niche marketing drives down the cost to serve per client. Once financial advisors learn the details of the key strategies utilized by niche members, they can redeploy that knowledge, hence serving the next prospect or client of the same niche and be even more profitable.”
Roame also sees advantages for advisors who specialize in certain industries and markets, echoing Linkowski’s and Gomez’s comments.
He mentions the fact that advisors are more likely to be referred by existing clients to new clients with the same needs when they become known experts in a particular area. Roame’s cost-to-serve argument means more clients in a niche leads to a lower cost per client and “lots more profit!”
Is it for everyone? Not necessarily, Roame says, but financial advisors can also serve two or three niches for variety.
The good news for advisors is that there is no shortage of niche market segments.
Roame points to potential areas such as divorcing spouses, women gaining wealth due to their World War II husbands’ passing, LBGT, immigrant communities and small business owners.
Ultimately, if experts like these aren’t enough to convince advisors about the viability of niche markets, then the numbers should.
According to research from CEG Worldwide, a whopping 70 percent of the top financial advisors (defined as those who earn $1 million or more annually) focus on niche clients or a specific component of the advisory market.
The coaching and research firm goes on to note that many go further to “concentrate on a niche within a niche,” such as transitioning from C-level executives to CFOs of technology companies.
The challenge, and opportunity, are probably best summed up by CEG’s Jonathan Powell.
“Building your entire practice on one type of client is no easy task. There is a considerable amount of extra information and vernacular to learn; it also takes more than just time and education to gain the trust of a community you may not have any relationships with. But that is exactly why these clients are underserved and in great need of professional assistance.”
Why Niches Work So Well
A whopping 70 percent of the top financial advisors focus on niche clients or a specific component of the advisory market.
Lucrative niche markets can exist throughout demographic or industry segments including immigrant communities, LGBT, construction, trucking and even more specific areas such as CFOs of technology companies or World War II widows.
Scalability is as true with niche markets as it is with traditional clientele, because they have similar needs.
Areas such as education, administration, fiduciary and liability are just as important, but advisors may approach them differently based on the client interest. However, as long as you have processes and procedures in place says Hanson McClain’s Jairo Gomez, you can replicate everything, across the board, for any market
Lynn Brackpool Giles is a contributing editor to 401(k) Specialist. Giles is a former Managing Director of Communications and Consumer Services for the Financial Planning Association (FPA), where she oversaw all corporate, legislative, and consumer communications. In her current journalistic practice, she is a frequent contributor to numerous financial services industry publications.
