Marketing for Financial Advisors: Harness Data, Drill Deep into a Niche — and Thrive

Financial advisors face difficult challenges given the global economic and financial crisis. Yet advisors can not only survive the downturn, but also thrive during it, according to the authors of a new book, Marketing for Financial Advisors: Build Your Business, Bring in Clients, and Establish Your Brand. According to Wharton marketing professors Eric T. Bradlow and Patti Williams, and Keith Niedermeier, director of Wharton’s undergraduate marketing program, the struggling economy provides an opportunity to “attack” and gain market share. Moreover, the industry has underinvested in marketing, they say, leaving low-hanging fruit to those who use the right tools. In an interview with Knowledge@Wharton, Bradlow, Williams and Niedermeier discuss how financial advisors can build their book of business — even in a down economy — by adopting data-driven and niche marketing principles.

An edited transcript of the conversation follows:

Knowledge@Wharton: Today we’re speaking with the authors of a just-released book, Marketing for Financial Advisors. The authors are Wharton marketing professors Eric T.  Bradlow and Patti Williams, and also Keith Niedermeier, who is the director of Wharton’s undergraduate marketing program. Welcome all. This must be a tough time for financial advisors. There’s been real carnage in the stock market, which can’t be a good thing when it comes to confidence in your financial advisors. No doubt many would argue that in tough times you need a financial advisor more than ever and that adversity creates opportunity. But hasn’t credibility taken a blow? And what can financial advisors say — “My customers lost less money than other advisors’ customers?” Keith, would you like to start out with that one?

Keith Niedermeier: Sure. We see the difficult economic times certainly as problematic for advisors, but more as an opportunity. While advisors may be having problems with their clients, certainly the competition is also, which suggests this is the time to understand your customers and your clients better than any other time. It’s an opportunity to lock down the clients you have and to create opportunities to get more clients — dissatisfied clients from other advisors. So, Eric, would you like to add to that?

Eric Bradlow: Yes. One of the things we discuss in the forward of the book, which has gotten a lot of buzz, is whether this is a time to attack or retreat? And one of the things we stress in the book is, as you pointed out, that this is an opportunity to gain ground against other financial advisors. And so we see this as an opportunity to attack.

Knowledge@Wharton: You mention in the book how important is it for financial advisors to develop three words to describe their business, the three messages that most potential customers will take away from an introductory conversation. So let’s turn the tables here on you folks: What are the top three takeaways from your book? Why don’t each of you choose one? Patti, why don’t you go first?

Patti Williams: Sure. And I’ll pick up on the notion that you just mentioned of choosing those three words. One of the most important things that we emphasize in the book is thinking about your business, if you’re a financial advisor, as a brand. A lot of financial advisors are a little bit afraid of marketing, they didn’t get into the business to be marketers. They don’t want to be perceived as taking advantage of their customers through marketing. But a lot of what they’re doing is actually marketing. And we tell them they should think about those three words and really think about the nature of the brand they want to deliver to their customers. What do they want to be? Who do they want to be to their clients? And how can they set up their entire practice around building that image and that capability so that they can truly be what they want to be to their clients.

Bradlow: I think one of the big takeaways that I’ve seen in the classes [for financial advisors] is the concept of developing a board of advisors. I think one of the things that we talk about a lot in the book is getting feedback, not only from your clients, but also from a set of potential peers. So maybe these are accountants, lawyers, doctors, and similar are trusted servants. One of the tactics that we talk about at the end of the book is developing your word-of-mouth army. Who are the people you would like to speak about you? And later we’ll talk about the three words we’d like them to speak about you. So having a board of advisors, just like any company would do, is a good strategy for a financial services practice.

Niedermeier: I think one of the main takeaways that we’ll talk about is the importance of finding your niche, matching up your strengths as an advisor to a group of clients that are looking for that strength. And what that means is, is really narrowing the field, going beyond just high net worth clients or people who are at retirement age to a narrow focus. That can include looking at demographics and also how much they have to invest, what they’re looking for in an advisor, etcetera.

Knowledge@Wharton: Can you tell me what makes your book different from others on the same topic?

Williams: Sure, maybe I’ll start and you guys can jump in. One of the things that I think differentiates our book is several chapters devoted to investor decision making, and a deeper understanding of investor psychology. Keith and I are psychologists, we come at this from that perspective and we’ve really worked to aggregate the literature, distill all the literature on this topic and then frame it within the context of this broader sort of marketing strategy, all in an effort to really understand your customers and understand your niche. And there are relatively few books out there that offer this as part of a bigger marketing perspective in particular.

Bradlow: And not being the consumer psychologist amongst us, I think the value that I’ve kind of tried to espouse and bring through the book is, again, the value of data. That is why, I think, when Patti and I started teaching this [marketing for financial advisors], we designed a survey specifically to get the voice of clients into the book. Our’s is the only book I know of that has actually done a survey of financial advisors. And so it’s not, just investor psychology, which is crucially important, and the idea of segmentation’s important, etcetera. But we also use the voice of financial advisors. And I think that’s a huge differentiator for this book. We also have more in the book that’s quantitative in nature — that looks at putting a value on clients and trying to understand which ones are the best to go after. In some sense, if you like, it’s marketing the Wharton way. And marketing the Wharton way is a data-based, quantitative way. Keith?

Niedermeier: Absolutely. That’s really the way I see the book. We been working with financial advisors for a long time, and but we’ve taken, almost, the curriculum of the introductory marketing course as we would teach it to MBAs here at Wharton, and put it in a context that is useable for financial advisors. The book also goes well beyond just anecdotes or stories from successful advisors to a data-driven approach that could be taken to mortgage brokers or to the insurance industry, and to a lot of related industries. But we’ve chosen to focus on financial advisors because we have so much firsthand experience with them and we felt that there was a real need in the market for a book like this.

Knowledge@Wharton: Patti, are there other industries besides those mentioned that would benefit from the book?

Williams: Well, the book offers a real fundamental set of principles about how to think about marketing. And from that perspective it’s useful to anyone who thinks that an investment in marketing could improve their business. We’ve used some of the same concepts when we’ve been talking with optometrists, talking about how they can do a better job of marketing their practices. And it’s really about understanding clients, understanding customers, understanding their fears, their concerns, thinking about it from a strategic point of view as opposed to a purely tactical point of view. So there are lots of opportunities [to apply the concepts in the book to other areas].

Knowledge@Wharton: Thank you. From surveying some 800 financial advisors you find that customer service — or understanding client needs — is the number one driver of success, not delivering high or above average financial returns. That may surprise some people. Above average returns are listed as the fourth most important driver. So much for the bottom line being everything. But based on that, can you tell us two things? In today’s market is building customer relationships the same as building trust? And what else does building customer relationships include? What does it look like?

Bradlow: Maybe I’ll take the first half of that and pass it over to Keith for help with the second part. Actually, I was just going to say more philosophically that one of the best things we did when Patti and I started teaching in this program maybe five or six years ago, and then when Keith joined us, maybe, three years ago now, the smartest thing we ever did was developing the survey. That’s what really separates this book from other things that have been written. We use the words of the financial advisor to help, if you’d like, append what it is we know as marketing professors. So it’s not just three marketing professors sitting there thinking about what are the best practices — we use the voice of the customer.

And just also adding to what Patti said earlier, the nice thing about is, notice the name of the industry. It’s not the financial industry, it’s the financial services industry. That’s another thing I’d emphasize. Being a service industry, as Patti said, you have to bring in the concept of marketing. If you told someone they were in customer service, they would understand the importance of marketing. And so it’s a services industry. Keith also had done a lot of background research. We’re not the only ones that have found that service is the most important thing, and that delivering super normal returns is the fourth most important driver of sales.

Niedermeier: We found in a lot of other surveys, in addition to the work we’ve done, that relationship building is the key to creating satisfaction and creating loyalty. And as you point out, it consistently comes in rated above financial returns in importance. One thing that goes hand in hand with what Patti was saying about branding is that, in the financial services businesses, good financial returns are expected, and a financial advisor would not be in the consideration set to be hired in the first place by a client without that expectation. So it’s almost assumed — that high returns are required for admission. And at that point you’re talking about proactive communication, clear articulation of fees, problem resolution, the things that build trust and build relationships hand in hand.

Knowledge@Wharton: Well what does this customer relationship building look like? Patti, would you explain a good way to think about this?

Williams: Well, throughout the book we talk about the value of really beginning at the beginning with a sound set of marketing practices. Really starting with the notion of segmentation, who are your customers? What do they want from you? Customer relationship building really begins with an understanding of what they want and then an understanding of what you can bring, so that you’re actually promising something you can truly deliver and you really are delivering something that the customers are actually going to value. Customer relationship building isn’t just about acquiring clients and keeping them for a long period of time and imagining what the net present value of those returns might be over some time, but really thinking about how you can cultivate those returns by building a bigger relationship that deepens, that starts off as a simple conversation and then builds to some sense of loyalty and trust that emerges over a time horizon.

Bradlow: The only thing I would add to what Patti says, and I talk about this a lot when I teach this, is: Let’s suppose someone, as Patti was saying and Keith was saying, chooses physicians as a niche market. That’s a pretty reasonable market to target. But you had better like hanging out with these people. A lot of times it’s easy to feign sincerity and think, ‘that’s where the money is, I’ll chase the money.’ But when you’re actually trying to build a relationship, people can see through that immediately. So one of the things we also talk about in the book is when you choose a target market, don’t just think about where the money is — what’s the opportunity — think about your personal characteristics, the type of people you tend to connect with more and maybe even collect some data on which type of people you tend interact best with. It’s very important that you want to be around this niche market that you’re selecting. 

Knowledge@Wharton: When you talk about niche markets, you note that you want to look at a narrow slice rather than a broad slice, is that right, whereas some financial advisors think you should simply go after all rich people, for example?

Niedermeier: We think that the narrower the niche, the deeper the opportunity. And when we’ve surveyed financial advisors, high net worth clients comes up as the number one niche [they’d like to target]. But we don’t feel that that’s a niche, that’s a very wide sector. In order to really build deep relationships and have a deep needs-based understanding of your clients, you have to go after a more narrow niche — such as professionals within a certain industry. Some of the most successful advisors we have, have the narrowest niches, for instance — lawyers in a certain income bracket within a certain geography, or people working for a certain school district. These people have an unparalleled understanding of the needs, the benefits, and the income patterns of these types of clients, which somebody who’s a generalist can’t ever develop. Thus, they can never have the deep understanding and responsiveness that’s required to get to that highest level of satisfaction and loyalty that ultimately brings the best returns.

Knowledge@Wharton: You also note that neither trust nor performance are differentiating factors, but more like the price of entry. You were talking about the price of entry earlier. So every financial advisor has to offer this, but can you discuss some key differentiators that do help financial advisors separate themselves from the pack? Patti?

Williams: Sure, well let me just step back and talk about the survey result as you mentioned. One of the things we ask in the survey is, “What are the arguments you would make to acquire a new client or to keep an existing client?” And what we find when we ask financial advisors about this, they almost all mention one of four or five characteristics or capabilities. And as a result there’s virtually no differentiation among them in the market. They’re all saying they have exactly the same capabilities, they are trustworthy, they’re customer oriented, they offer good performance, whatever it might be that’s in that set of five characteristics.

Knowledge@Wharton: They all have the same elevator speech, is that how you put it?  

Williams: They all have the same elevator speech — they’re not differentiating themselves from one another. And as a result, how could a client figure out who to choose? If all four of us around the table were saying we were exactly the same, how could someone else come in and say, “Well, I’m going to pick that person or that person.” There’s no objective criterion on which to choose. And so we encourage financial advisors to understand you have to have those five characteristics, those are table stakes. You need those to get yourself to the table. But they’re not going to separate you from someone else, so can you go beyond that? And one way you could go beyond that is by really understanding your segment, that niche that you’re pursuing. What is it you offer them uniquely that nobody else sitting at the table offers? And maybe it’s expertise in a particular compensation structure, and you really understand how to deal with that compensation structure in a better way. Maybe it’s because you have knowledge about particular products. Maybe it’s because you have knowledge and access to a broad set of collaborators who can offer unique services. But you must go beyond that level of that top five that you might come up with. That’s a hard thing for financial advisors to do. They all want to have that top five. And there’s no clear advice to what that next set ought to be, except that you should think hard about what your customers really want that next set to be.

Bradlow: The one thing I might add to what Patti said that I have found over time to be a good way to collect that information is to ask, how did people acquire their wealth? It tends to be a very strong predictor of the type of individual you’re dealing with. Because one of the important factors here — it’s not my area of expertise, but it is Patti and Keith’s, — has more to do with consumer psychology. So think about the person or the potential client that has just inherited a lot of wealth versus someone that’s earned that wealth through a family owned business. Or think about someone that has just, maybe someone that’s become an Internet multi millionaire versus some other way of acquiring wealth. I’m not saying that’s the end all be all, but it’s not a bad way to start thinking about what might be the mindset of an individual, and what approach will be effective towards reaching them.

Niedermeier: I think ultimately to add to what Eric was saying, going back to this idea of niche-ing. One of the huge themes in the book, chapter after chapter, is specialization, matching up your strengths as an advisor to a particular niche of clients. And the ability to have that match up creates differentiation also. So for instance, where you acquire wealth, we’ve worked with some advisors who specialize in family endowments, which is a growing business. But you have to have some real specialized knowledge. And for instance, one of the overriding concerns with family endowments is risk aversion, and preservation of wealth and carrying that wealth through future generations. Growth the wealth is not necessarily important for this group, though it can be a very important goal for a lot of other advisors or a lot of other client bases. So an advisor who really understands that can deal with family endowments. An advisor who knows the specialized types of products that are best fit for that, and who also understands risk profiling, is going to create differentiation as opposed to just somebody who’s taking, again, any and all clients.

Bradlow: Notice that what Keith’s describing though could mean sacrifice. That’s what we talk about in the book — that niche marketing and segmentation implies sacrifice. So by not focusing on the aspects of exciting and high growth, which could also tend to lead to risk, you’re maybe differentiating yourself away from one set of clients and differentiating yourself towards another set of clients. And as Patti mentioned earlier, a lot of financial advisors are afraid to do that. But that’s what the concept of niche marketing is about.

Knowledge@Wharton: So you have to create something and also destroy the possibility of going into another area?

Bradlow: I wouldn’t say destroy the possibility. What I would say is most successful brands build themselves one niche market at a time. And if you try to spread yourself thin across multiple niche markets, there will always be somebody who’s got a greater differentiated product towards that segment than you.

Williams: The part of the process of defining who you are as a brand is also defining what you aren’t or who you aren’t. And that means choosing particular segments that you’re not going to focus on or particular capabilities that you don’t want to have. So it’s as much about saying who you are and who you want to be as it is saying who you aren’t and who you don’t want to be.

Knowledge@Wharton: Well that’s interesting, because you also say in the book that, and maybe you can explain this for our listeners, what you mean by “know your brand and know that you are the brand.”

Bradlow: The best example I can always give, which wasn’t actually from teaching financial advisors — I’ve also taught people in the venture capital community — and they always say that the minute you walk out of your door, you are your brand. Which means every aspect of the way, you behave, you treat clients, you treat coworkers — that’s all part of your brand. And so one thing we do talk a lot about in the book, which more generally marketing people call integrated marketing communications, is every aspect of your business, the people that work with you, your communications messages, and so forth, must be around your brand. But at the end of the day, we always ask this question when we teach this course: If you were to leave your particular firm, how many, what percentage of your clients would go with you? And in some sense your firm would like that answer to be low and high simultaneously. But most likely you would like that number to be high. And I think at the end of the day, your firm would probably want it to be high as well.

Knowledge@Wharton: They’re better off if it’s high.

Bradlow: Exactly.

Niedermeier: The term brand, we’ve taught, I don’t know how many sessions, thousands and thousands of financial advisors, and one of the things that we’ve found is that a lot of times people don’t like the word “brand.” To them it sounds as if you’re talking about a can of soup or toothpaste or something like that. So a lot of times we like to talk about it in terms of reputation — managing your brand is managing reputation. I think that’s easier to understand in terms of how it affects your interaction with your clients. Your brand and your reputation is everything you do. And one of the things that we point out in the book which a lot of advisors have liked discussing in our sessions is inventorying your touch points. What is every single touch point that a client has with your brand or that would impact your reputation, like your written communications, your collateral materials? Including if you work for a bigger firm, what are the things that the firm, what are the messages that the bigger firm is sending to your clients? And how are you either consistent or inconsistent with those messages? So really understanding, inventorying and integrating all of the touch points, all of the things that could possibly influence your reputation or your brand with those clients — it’s important to have a grip on all of those and to manage them consistently.

Knowledge@Wharton: Let me drop down to something a little more tactical, and that is you mentioned something that I thought was very interesting — the classic attack. In a down market, in a recessionary market, you want to think about advertising a little bit differently, perhaps a lot differently. Can someone explain the example in the book, about the classic attack during a down market?

Bradlow: Sure, I’m happy to say a few words about that. I mean the classic model of the way advertising effectiveness works has to do more with the concept of share of advertising. An example would be, let’s say you’re a firm, I’m a firm. Let’s say you spend $100,000 a year on advertising. I spend $100,000 a year on advertising. If all else equal, we’ll split the market. And when I mean all else equal, I mean our products are preferred the same way, we’re known by the same number of people, etcetera. But let’s imagine that you cut your advertising spend to $50,000 and now I spend $100,000 on advertising or the same amount, but you can’t potentially increase your advertising because you’re having financial troubles. Well, now I have the two to one ratio. So even though my advertising spend has not increased, my share of advertising has increased. And that will tend to lead to better awareness of my brand, possibly better preference for my brand.

So the reason we talk about this attack strategy is, as you mentioned in the beginning, down economic times present opportunities. It gives you a better opportunity to get a larger share of the mindshare and the advertising pie. But again, it’s not just who speaks the loudest. As Patti mentioned earlier, it’s who speaks with the right brand and the one that’s consistent with the message you want to portray. So it’s not just shout the loudest, it’s shout the loudest with the right message.

Knowledge@Wharton: Regarding recommendations on segmenting the audience, one typical argument against this is that it restricts an advisor to a small fraction of potential clients. We’ve talked about this a little bit, but you argue against this idea, can you elaborate on that a little bit more?

Williams: I think many financial advisors are reluctant to do this. We asked the advisors we’ve taught, “How many people can you really serve? How many clients can you really have in your book of business?” And maybe it’s 200. Maybe it’s 300. Well how big does your segment need to be in order to achieve that number? And I think that’s the sort of biggest number that we typically see. A much more common strategy is maybe around 150. How big a segment do you need in order to get to that number of clients? And how many people can you really serve at a level that builds that trust, that builds intimacy, that level of a relationship where you really understanding the client and their needs? The answer is: Not that many. So it really does require sacrifice, it really does require focus. And what we find over and over again is that the advisors who have focused and who have this narrow niche, they tend to be better off, they tend to be happier as well. I would just say they find their businesses easier to run than the people who are trying to be everything to everyone.

Knowledge@Wharton: So one last question, what did you find in your survey of 800 financial advisors that surprised you or that you think would most surprise financial advisors? Maybe you could each pick one thing.

Niedermeier: The one thing that surprised me was that the more successful the advisor, the fewer clients they had. As Patty was saying, the ones who seem to have the biggest share of assets under management, the largest assets under management per client, seemed to be the ones with the narrowest niches and the fewest clients. And to follow up on Patti’s point, advisors who are afraid of doing that should recognize that if they were to drill down and just dominant a niche, they can later move onto the next most similar one. But to go the opposite way, to be everything to everybody and try to drill down into those deep, deep wallet shares and large amounts of assets under management is very, very difficult. And we’ve just seen few to no examples of that type of approach having a good outcome.

Knowledge@Wharton: So choosing a narrow niche, you can just look at it as a place to start. You don’t have to look at it as a limit.

Bradlow: I think the one surprise I would add is that if you think about the amount of wealth being managed by a financial services practice, it’s not that small. You would think that many of the concepts of data-based marketing, meaning using data to make decisions, would be used more by financial advisors than it is. One example is the concept of lifetime value — how much is a particular client potentially worth to you and how much time should you spend on acquiring the customer. The concept of firing customers, which every service organization knows [can also be valuable]. So I think my greatest surprise was the lack of, I’ll call it, a data-based approach, just collecting how many contacts did you have? How many turned into second conversations? How many led to eventual clients? So I think one of the things we espouse in the book is taking a more data-based approach to actually managing your practice.

Williams: In general, the lack of willingness to make an investment and some fear of being a marketer [surprised me.] We work in executive education here with many of the very best financial advisors from many of the very best companies. The folks who get to these programs are the top of any firm’s financial advisors. And what we find is that they’re often good natural marketers, they have good tactical instincts. But they’ve underinvested in strategy. So they’ve not thought a lot about what they want their brand to be and how they can integrate it across those touch points. They sort of implement those touch points in a much more tactical, low-key way. And sometimes they’re doing pretty well, but they haven’t thought about it at a real high strategic level. Think this is an industry that has underinvested in marketing in general. And in some ways I think as a result there is low-hanging fruit for them. This is a place that deserves their investment and I think it will yield returns for them, maybe beyond what they think it will yield.

Knowledge@Wharton: And maybe the market’s listening more now than before? Or not? What would you say?

Bradlow: I would say that I don’t think that we wrote this book thinking that the market was listening more. But I must admit it’s an opportune time.

Williams: Many industries in down times pull in rather than attacking. Given the nature of the crisis we’re facing now and its relationship to the financial industry, I think that has made financial advisors more likely to pull in, they feel more at risk even than they might have in another downturn. I think smart companies and smart advisors realize the opportunity that this presents and the opportunity for them to truly differentiate themselves, especially in this market, but many others do not.

Knowledge@Wharton: Keith, any last words of wisdom?

Niedermeier: Clients out there are scared, they’re confused, and they’re looking for good advice. There are a lot of competent advisors out there with good advice to give. But it has to be put in a context that clients feel comfortable with, where they feel comfortable with you, and it needs to be communicated to them. And that’s the type of strategy and tactics we’ve tried to put together here, to help financial advisors do that, to help them focus on the clients that need the help and put these two together so there’s success all around. And that’s really what we’re hoping for.

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