Financial advisors rightly preach the virtues of diversification to their clients. But what works well for investing isn’t necessarily a good strategy for building a financial planning business. In fact, focusing on a narrow client niche can be a lot more effective—and profitable—than casting your net as wide as possible.

“Most advisors feel there is too much risk in basing an entire practice on a niche, yet they run the risk of getting lost in a ‘sea of sameness’ in the market,” said John Anderson, managing director of the practice management solutions team for Independent Advisor Solutions at SEI in Oaks, Pa. “According to our research, only 31 percent of advisors serviced a niche, leaving nearly 70 percent who are trying to define their value proposition as a generalist. In an age where the consumer is looking for personalization and customization, being a generalist isn’t going to cut it.”

Many advisors focus all or most of their attention on people who work for a specific company. Ed Snyder of Oaktree Financial Advisors in Carmel, Ind., for example, works with employees of Eli Lilly, the big pharmaceutical company and one of the largest employers in Indianapolis. 

“I chose this niche in the early 2000s after working with a few Eli Lilly employees and realizing that there was a good opportunity to help them with their benefits,” Snyder said. “They are busy professionals who often don’t have time to research and know what their best options are.”

Nicolás G. Valdés-Fauli, a certified financial planner at Main Street Financial Solutions in New York City, has served members of the law enforcement community in South Florida, particularly the Miami-Dade Police Department, since 2002.

“I found this was an underserved market, riddled by underqualified and disingenuous sales people,” he said. “[Clients] weren’t necessarily being led in the direction that would benefit them most, but rather the path that would benefit the financial representative. These folks spent their careers protecting and serving their communities; we felt it was time to serve and protect them.”

Many larger advisory firms, Valdés-Fauli said, weren’t interested in such a small demographic or in taking the time to educate themselves on the intricacies of these clients’ defined-benefit and defined-contribution plans. He now has 60 such clients with about $50 million in assets under management.

Specializing in a narrow niche doesn’t mean your practice has to stay small. Indeed, it could be the launching pad to an even larger business.

Scott Hanson, co-founder of Allworth Financial, formerly Hanson McClain Advisors, has turned a niche working with employees of Pacific Bell and other utility companies in the Sacramento, Calif., area into a national RIA firm with 6,000 clients and $4 billion in AUM.

"We started targeting the utility industry in 1993 during the downsizing of the telecommunications industry,” he said. “Pacific Bell had done quite a bit of hiring 30 years prior, so you had a large number of people in their 50s who were being offered retirement packages to leave the company. We became experts at their pension plans and began to understand all the nuances better than the people in their HR department. We did a lot of educational workshops, and so we became known as the people to go to.”

Sometimes a niche will find you, rather than you having to look for it. That’s what happened to Benjamin Yin, principal and co-founder of Generational Financial Partners in Norcross, Ga., which caters to physicians.

“A physician approached me about disability insurance, and when I served him well, he asked me what else I did and how else I could help his family,” Yin said. “He agreed to engage our firm in comprehensive financial planning and, again, we exceeded his expectations. This one physician became my champion and started to introduce me to several of his colleagues. From there, it became a domino effect.” His firm now serves more than 200 such families, which account for 90 percent of his business

“You need to have an ‘in’ rather than just picking a niche and deciding you want to work with affluent people,” he said. “Once you’re given the opportunity, you better seize it and never let it go because as soon as you get too comfortable and drop the ball, someone else will be there waiting to pounce.”

Specializing in a niche also makes it easier to market your services.

“When you want to grow faster, rather than just relying upon referrals—which takes years—one of the best ways to attract new clients is to target a specific employer or workgroup in your city or town,” Hanson said. “When we started, it was faster, easier and less expensive for us to market ourselves in a small environment than it was to market to the masses. We went for the utility companies because they had a large, aging workforce, exceptional retirement benefits and they paid high wages.”

“The number one reason a physician chooses us as their advisor is because we work with people just like them,” Yin said. “Every marketing piece I have solidifies that point: There is no mistaking the market I serve. We speak at countless residency programs throughout the country to ensure that physicians come out of training with a solid financial foundation.”