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Advisers urged: Specialize
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September 12, 2000: 12:16 p.m. ET
Study sees growing competition for financial advisers; niche strategy urged
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NEW YORK (CNNfn) - Independent financial advisers must develop specialized strategies if they want to survive in an increasingly competitive marketplace, a mutual fund operator warned Tuesday.
The coming shakeout will transform the money-management business and a handful of firms growing to become dominant competitors, with an estimated 40 to 50 firms controlling portfolios of $15 billion to $20 billion each, according to a study by Undiscovered Managers LLC, a Dallas-based fund company.
Thousands of small firms also will survive, but "they're going to be working a lot harder and they're going to be making a lot less money," said June S. Slowik, senior vice president of the company and lead author of the 50-page research report.
 The pressures will come from all sides, as financial giants seek to extend their reach to more customers, while online brokers offer low-cost trading.
As a result, the services that advisers offered in the past -- asset allocation and investment recommendations -- are becoming commodities. Slowik said the adviser who used to be able to earn $125,000 annually in the past will find it a struggle in the future to make $50,000 offering the same services.
Developing niche strategies
The greater opportunity is likely to be in financial niche strategies, where an adviser can charge a premium price for specialized services to a narrowly targeted group of clients, said Mark P. Hurley, president of the firm.
He cited three primary examples:
· An adviser in the Southwest specializes in family-owned businesses, whose owners may have $500,000 to $1 million in assets to invest but who often have no one to talk to about business issues. By recruiting retired executives to act as informal boards of directors for these private companies, the adviser positioned himself as the source for entrepreneurs to turn to. It was "the single best marketing tool he had ever tried," Hurley said.
· Another adviser sought out "women in transition," fairly affluent widows and divorcees in a certain geographic region. By developing strategies for dealing with their most complex financial problems, this adviser developed a sustainable niche market.
· A third adviser specializes in college professors, whose incomes from their jobs are not that large but who have tremendous potential value in their intellectual property. By not only managing their investments but also developing the skill to negotiate employment contracts with their university employers, this adviser was able to attract a steady stream of new business.
Hurley declined to identify the advisers.
Advisers will be able to use technology to drive their costs down as competition increases, but they also will need to develop scale -- $400 million to $500 million under management -- in order to achieve the operating economies that will enable them to compete effectively, Hurley said.
Another recommendation was for advisers to build their firm's brand -- to position themselves as institutions. Most independent financial advisers today base their marketing on personal relationships with their clients, which leaves the firm vulnerable if a key employee quits and takes those customers with her. Hurley recommended that even small firms should employ a team approach, so that if an employee left, other members of the team still would be in place to serve the client.
He also urged the proprietors of small firms to share ownership in their firms more broadly among the staff to promote employee loyalty.
"These niche opportunities are not going to remain out there forever," Hurley warned. "If they make the right choices, they will do very well." 
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