The Benefits of Specialization

How specialized planning services deliver comprehensive benefits to RIAs

of financial advisors annually earning at least $1 million in net income target a particular niche.1 __________

Faster growth

Imagine the earnings power of a team full of specialists that collectively provide holistic planning to a diverse clientele. Here is a real-world look at the potential value of delivering specialized planning services.

According to the U.S. Census Bureau, an estimated 10,000 Baby Boomers retire every day.2 This generation represents about 22% of the American population (or roughly 73 million people).3 Perhaps most importantly to you, Baby Boomers control about 53% of the nation’s wealth.4

Spectrem Group. Wealthy Investor Series: Wealth Management Redefined. 7/2021.

As Baby Boomers age and deal with expensive health care costs and long-term care considerations, most require more than investment management services. Their expectations include more specialized retirement income planning knowledge that encompasses wealth transfer, trust services, estate planning, long-term care, and life insurance. However, as the chart shows, clients’ expectations are not being met in these critical areas.

While pre-retirees have long been a primary target market for most financial advisors, having advanced and specialized knowledge in the breadth of retirement needs provides a path of differentiation.

Greater sustainability

Investors are typically instructed to spread their wealth across various asset groups to minimize risk. Diversifying to reduce risk also applies to RIAs in terms of client demographics. Offering a spectrum of specialized services aids in diversifying your clientele and can lead to greater long-term sustainability.

Consider the ramifications of being focused solely on Baby Boomer clients—without the ability to cater to younger generations. As your clients age, systematic withdrawals begin, which could result in shrinking AUM and revenue.

Worse still, if your business is focused mainly on working with males aged 75 years or older, your business is at great risk of becoming less valuable as time goes on; studies show that 80% of widows leave their financial advisor within the first year following their spouse's death.5

Firm sustainability increases as you deliver specialized services to support a diverse client demographic. Additionally, your business will be less susceptible to slowdowns when challenging market conditions or global macro events occur because clients will always need specialized fee-for-service guidance.

Better client service

Specialized planning facilitates better results for clients by helping to ensure all components of their financial lives work together. Since emerging RIAs do not have the support of a home office to deliver advanced planning, clients are frequently referred to other professionals. Each referral made outside of the firm is a risk of loss (lost revenue potential, perhaps even a lost relationship).

Specialized planning serves to simplify clients’ financial lives—especially for those with substantial assets, complex needs, or niche requirements (such as special needs planning). It may also provide greater peace of mind as your clients know their advisor has the specialized expertise to address their ongoing needs.

More lucrative clients

High-net-worth clients and mega-millionaires—such as wealthy, multi-generational families—with a broad range of ongoing needs are a prime target for many advisory firms. Without an array of specialized financial planning services, emerging RIAs are often unable to compete for these clients.

Multi-generational families can be a sustainable source of revenue for your firm for decades, but this means your firm's service model must be able to assist the younger generations, in addition to the matriarchs and patriarchs of the family, across a wide range of complex, specialized services.

Diverse fee structure options

Fee-for-service continues to gain momentum as more clients prefer, or even demand, this approach. Specialized planning services enable your business to seamlessly take advantage of this trend. You can charge fees for the additional services you provide that require expertise in specialized areas instead of simply relying on the 1% AUM fee. Some of these services include student loan repayment plans, evaluating career changes and their financial implications, or college savings plans.

Additionally, as the public becomes more accustomed to subscription-based services, this model will continue to gain popularity. A subscription-based service model provides clients with the flexibility to pick and choose what they want, when they need it. They can start with basic planning, and later opt for more complex planning services such as retirement income planning or estate planning.

"Traditional AUM fee models still used by many RIA firms won't work well with certain subsets of clients, including high-income earners who have yet to accumulate substantial investable assets and younger clients who are often dealing with different life transitions over a more compressed time frame and have financial planning needs that fall outside the scope of traditional investment management."

Ross Riskin, DBA, CPA/PFS, CCFC, MS Tax AVP Academic Strategy; Director of the ChFC® Education Program

Greater client retention and referrals

Providing comprehensive services creates a “stickiness” for your firm. It increases the probability that clients will look to you first when requiring specialized advice.

As mentioned above, specialized planning is conducive to enhancing a client’s short-term and long-term results. It may increase their loyalty to your practice and make them more likely to refer family members, friends, and co-workers to your business. Gaining referrals reduces your reliance on prospecting and lets you spend more time and energy on what you do best: working with clients.

Easier recruiting/higher employee retention

Being a firm that employs a specialized planning framework serves as a powerful recruiting tool. Experienced advisors with specialized knowledge in retirement income planning, risk management strategies, special needs planning, philanthropy, and other areas may view your practice as an opportunity for partnership and find it appealing—and financially rewarding—to join a team where they can focus on their area of interest.

Meanwhile, promising young advisors may look at your firm as an ideal place to gain experience, develop a specialization, and stay for years. All of this creates low firm turnover—an enticing selling point for current and prospective clients. Additionally, diversity in the demographics of your advisory team serves to help attract new and diverse clients to your practice, bolstering firm sustainability.

Better ability to differentiate

There is no shortage of evolving financial technology enabling individuals to do more on their own, such as creating customized portfolios simply by answering a series of questions online; however, it is doubtful technology will allow individuals to address complex estate planning needs by completing an online questionnaire anytime soon.

“Financial technology may be able to deliver sound recommendations to solve a variety of financial needs, yet the ability to effectively communicate the 'why?' in an understandable manner for the client remains a missing link in most applications, and it happens to be the most important to ensure clients follow through on implementing recommendations."

Ross Riskin, DBA, CPA/PFS, CCFC, MS Tax AVP Academic Strategy; Director of the ChFC® Education Program

Now that you have a deeper appreciation for specialized planning, we will explore some possible next steps and the critical role advanced financial education plays in diversifying your service offering. As you will see, education and specialization are intrinsically intertwined.

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1 CEG Worldwide 2 United States Census Bureau - By 2030, All Baby Boomers Will Be Age 65 or Older. December 10, 2019 3 Statista Research Department - U.S. population share by generation 2020. July 27, 2021 4 CNBC - Millennials own less than 5% of all U.S. wealth. October 9, 2020 5 CNBC - Op-ed: Recent widows need financial guidance after a spouse’s death. November 22, 2021