Identifying a unique selling point and targeting a niche market is an ideal way of sharpening business models in preparation for the implementation of the RDR, as advisers Brett Davidson (pictured), Simon Boulter and Jeremy Brett explain.
Now is the perfect time for firms to work on their unique selling points (USPs). Many financial advisers are developing their business models to cope with adviser charging and all the other requirements of the retail distribution review (RDR), and the best place to start this process is to identify and develop a USP and market niche.
Even if a firm has been RDR-ready for some time, it is worth following this plan as a way of sharpening models further. As advisers, such as Antony Williams of Evolve FP and Adrian Smith of Adrian Smith and Partners, have pointed out in previous articles in this series, the RDR will mean previously rarefied sections of the market are about to become more competitive.
Some new model advisers have achieved success in a wide variety of niches. A good example is targeting services at younger clients, as Plutus Wealth Management has done. Alternatively there are the high-net-worth and ultra-high-net-worth markets, although there is stiff competition from the private banks, not that this bothers most new model advisers who understand their value proposition.
Other niches include offering advice to women (Finance4Women, which has now merged with Almary Green); expats (Killik & Co Financial Planning, which has a branch in Dubai); lottery winners (Ferry Financial); and those in need of advice on long-term care (Care Fees Investment). Other financial services firms and their owners is another productive niche area to focus on (Lift Financial).
Specialising in pension transfers, divorce, wills, tax, trust or court of protection work are all good ways to attract quality clients.
A different type of selling point is carrying out financial planning. The market is full of passive and active specialists. By focusing further, it is possible to offer specialist advice on ethical investments or on those based on certain religious beliefs. Other niches include cashflow modelling and financial planning, as well as life planning.
Location is important. Brett Davidson of FP Advance says: ‘I know someone based in Wimbledon who only markets in his own postcode. It is such a wealthy area, he thinks there are more than enough good clients.’
How to find your niche
It would be an advantage for advisers if they knew what their USP was when they set up their business, says Davidson. ‘But usually it comes later in the life of the business.’
He recommends considering the USP while preparing for the RDR. ‘While you are thinking about your model, it is a good idea to also be thinking about your USP. Around 98% of businesses have not done this,’ he says.
‘The sharper you can get your positioning, the thing you are fantastic at, and the narrower and deeper you can make it, the better the business usually performs. This is because it is easier for people to understand what you do and you can own a space. When you just say you are a financial adviser, financial planner or wealth manager, no-one knows what that means.
‘It does not mean that, when clients come in, you do not do the whole planning job, but it is too impractical to market that. You have to get people in the door first. The same goes for qualifications,’ he says.
Advisers may have a niche without knowing it and should try analysing client data with as many variables as possible to look for common characteristics.
‘When I did this on my old business, I thought I worked for anyone, but most of my clients were actually small business owners,’ says Davidson. ‘I did not even know I had a niche.
‘Most advisers are the same. I get them to look for any common features among just their top 10 clients. Usually we will do this exercise with only three or four of their top clients, from which I can usually tell everything about their business. Those top 10 give us a picture of the rest.
‘We might find all of the clients are business owners, three might be professionals and one might be a divorcee or a trust. I will ask if there is anyone on the list who does not fit one of these categories. If they say no, suddenly you have a niche.’
Having established a niche, advisers should drill down further. For example, if all clients are businesses, look for more commonalities such as size, location or industry. What common issues do they face? Find out about their competitors, suppliers and what other relationships they have.
‘Successful companies usually have good accountants, customers and suppliers, etc,’ says Davidson. ‘Like attracts like and success begets success. This is how niches grow.’
After accumulating this knowledge, advisers are then able to build expertise in the niche and look for ways to exploit it further. This may take longer, perhaps 18 months to two years. ‘You might have dealt with their immediate financial planning issues, but start thinking more broadly,’ says Davidson.
‘For example, companies offering financial planning in the dental market can also offer services to help clients buy and sell practices. They do not need to provide it themselves, but could find a consultant in the space. This would be a joined-up service.’
Researching the market
Advisers might find it useful to employ the services of a marketing firm to make their niche service successful. ‘Marketing is often the hardest thing to work out for your own USP,’ says Davidson. ‘Everyone else can see it, but you cannot.’
Boulter Bowen WealthCare did exactly that. Director Simon Boulter says: ‘We have always known the type of clients we love to work with. They are 50-plus, family-oriented, generous, trusting and decision makers. We also know our clients are delighted with what we do for them. But when we came to develop our marketing plan and grow our business, we realised that, although we did not have clarity on their needs or on what we did as a business to satisfy those needs, it was all intuitive.
‘At about the same time as the FSA proposed the RDR in 2006 to look at how investments are distributed to retail consumers, we began our own research into our clients to ask them about their concerns and how we helped alleviate them. We appointed a market researcher whose findings helped shape our business and, in doing so, significantly helped us in becoming RDR ready.’
Clarity on client concerns
The research gave extra clarity on many things the firm already knew about clients’ concerns. Clients were faced with living on investments and their concerns tended to be about money impairing their ability to enjoy their lives to the full. They were worried about maintaining their lifestyle; outliving money; making mistakes; who to trust; confusion over choices; tax; inflation; and the state of the economy.
‘The overall effect was a condition we call financial paralysis, where the easiest thing to do is nothing,’
‘Our USP is that we have a process to take people from complexity to clarity, giving them the confidence to fully enjoy life. Our clients demanded a high-quality, fee-based service delivered by professionally qualified advisers, not salesmen. So by default we were RDR ready.
‘Our mission is now to spread the message of our client value proposition. Given that the majority of our new business comes directly from client referrals, we do this every time we communicate with our clients,’ says Boulter.
Transition tale: Brett Investments
Jeremy Brett of Brett Investments is torn between two conflicting interpretations of how he should complete his gap fill, particularly over the definition of structured learning.
Brett still has to meet 20 learning outcomes to achieve his qualifications gap fill in advance of the RDR. ‘The scale of that became apparent at the beginning of the year for me,’ he says.
‘The Personal Finance Society (PFS) started its gap fill roadshows. I will be able to tick off most of these outcomes just by attending those, so I am not concerned and hope to have them all covered by the end of the year.’
Brett missed the first roadshow and was told watching a video of the event would suffice. ‘[Apparently] as long as you view it and are able to report on it correctly, that is adequate,’ he says.
However, he says the Institute of Financial Planning (IFP) interprets this differently. ‘When the PFS sent the video to me, I wondered how I would prove I had viewed it, so I contacted the IFP. The institute feels that you need a self-testing mechanism, but the PFS says you do not. The IFP views structured learning as having to physically attend a workshop, and it sees the videos as unstructured.’
Educating clients for the RDR
Aside from this dilemma, Brett is a staunch advocate of the RDR and has been educating clients and the wider public about its benefits through articles in his newsletters and the press. ‘We want them to understand the benefits of the way we work and why. Other than the learning outcomes, I feel we are RDR ready,’ he says.
‘My concern is about the amount of opposition out there, so the main thing is to make the public aware of it,’ says Brett.
When the parliamentary debate on the RDR was scheduled to take place last year, he wrote to his member of parliament, Michael Moore, who is also the secretary of state for Scotland, ‘to make sure that the real facts were known.’
‘I felt there was a smoke screen about qualifications and adviser charging because people had vested interests in the RDR not going through in this format,’ he says.
‘I was astonished that people would take the risk of not building towards RDR, hoping that it would not go through. The business opportunity for RDR-ready firms is there. For the sake of the industry, for it to be sustainable and more professional, the RDR had to come in. In many ways, I am surprised it has taken so long for us to reach this point.’