Many RIAs are struggling to grow because they're fighting for clients within their own zip codes, according to advisor Michael Kitces.
Advisors must differentiate their practices and focus on underserved niches, Kitces, partner in Pinnacle Advisory Group, an RIA based in Columbia, Md., said last week at the 2019 Schwab IMPACT conference in San Diego.
“The competition in the RIA model is drastically ramped up. That’s why we see so many firms now struggling with growth rates,” said Kitces. “Growth is worsening because competition is getting worse.”
The key to jumpstarting growth, said Kitces, is to differentiate along the lines of niche clientele. The problem, though, is that most RIAs have used their service model, fiduciary status—and even their location—as their differentiating traits.
“Who here has built their business on the premise that they have a more convenient zip code? The hard truth is that that’s actually a differentiator for most of us,” said Kitces. “Think of how many clients you have within five or 10 miles of the office.”
That was fine when an RIA might be the only firm offering comprehensive wealth management in its area, but that’s no longer the case, he said.
Kitces said that Pinnacle once was able to close 70% to 80% of its leads on the basis of its business model and fiduciary status alone, but now has a success rate no better than “a coin toss.”
“It starts to drive this question of what’s next? It’s all about specializations. It’s all about having some kind of much more specialized, focused value proposition,” said Kitces.
In Schwab’s 2018 Benchmarking study, advisors who could identify their ideal client and tell stories addressing that person experiences had 26% more new client acquisition and brought in 41% more assets per client.
Differentiation into a niche can aid marketing efforts more than generalized marketing, said Kitces, using the analogy of a fishing net. If a fisherman stretches their net out to try to encompass a larger population of fish, more of their potential catch will slip through the widening gaps in the net.