17 – The advantage of specialisation
Specialisation allows a financial adviser to ‘hone in’ on one particular type of client. That client-type might be members of a particular profession, such as school teachers or tradespeople, or people at a particular time of life, such as retirees, members of Generation Y or recently divorced people.
Most professions involve some form of specialty. Lawyers, for example, voluntarily divide themselves into family law specialists, or commercial law specialists, or (the really lucrative area) financial services law specialists, etc.
Practices that have homogenous clients – that is, clients with one or more significant, shared feature – are more profitable than other practices. There are many reasons for this.
First, homogenous clients are more suited to standardisation and systemisation. What worked for yesterday’s client will probably work for today’s client, and tomorrow’s client too. You can get better results for better prices, and this in turn leads to even more clients. Growth compounds and client numbers build until you have a significant and self-perpetuating practice.
Second, it‘s easier to get better. If you are dealing with similar problems all day every day it‘s logical that you will get better at solving those problems. Client presentations start to repeat, and you can see the patterns, and you can develop precedents, templates and systems that allow you to handle larger volumes of clients more efficiently than your competitors.
Third, marketing is easier. Word of mouth referrals are stronger within a smaller group and advertising can be more specific and focussed. It‘s more cost efficient to sponsor say, a newsletter dedicated to schoolteachers than it is to advertise to everybody in the Sydney Morning Herald.
Finally, the power of the precedent means you can create better statements of advice for your clients at a lower price and with a better profit margin. It pays to invest in your precedents and to make sure you are doing more for your clients at a lower price.
In summary, fee for service practices simply perform better if you have a homogenous client base.