|
 |
To
Flourish, Focus
by Larry Klein
|
Diversification
May Be A Wise Investment Practice
But It's Lousy For Your Financial Planning Practice
From the time you
entered into the financial services business, you've been told that diversification
is good. And you can see the evidence with the explosion of mutual fund investing
and the public's desire and financial professionals' advice for diversified portfolios.
But the same concept in your own business will result in your working more hours,
enjoying your work less, being less effective and never being able to streamline
your business. In business, the "winning formula" is just the opposite--focus
for the best results.
Remember the conglomerates of the 60's? They're gone. Just look what happens when
large firms fail to focus--AT&T acquires NCR to get into the computer business,
and loses a bundle. Kodak acquires Sterling Drug and spins it back to its shareholders
6 years later. Firms that focus on one business and do it very well have replaced
the diversified conglomerates. Look at the corporate leaders of today and how they
focus--Microsoft in consumer software, Cisco in Internet connectivity, Intel in chip
manufacturing. These firms each have a narrow and focused strategy in one industry.
How do these historical examples translate into advice for your business? Pick a
market in which to specialize and focus your entire business around that market.
Be fanatical about it.
Here's my own practice as an example. I work with people age 60 and over. When my
clients ask me to help their 40-year-old children with their finances, I refuse,
and refer them to another planner. Yes, you may think I'm crazy to turn down business,
but you'll see in a minute how much sense this makes.
By specializing in a particular niche, you get to understand how their mentality
works so well, that you know what your prospects are thinking before they think it!
I work all day with a segment of people that's concerned about protecting their assets.
My expertise is built around that concern--the way I design investment portfolios,
the approach I take in my appointments, how often I am in contact, and the products
and services I offer.
My office is in the suburbs, where my prospects live. I am in a small office building
with plenty of parking in the front. My office is on a well known street and easy
to find. The location was picked to match my prospects' ease and comforts. The children
of my prospects would probably find me more conveniently located downtown and be
more impressed if I was in a high-rise office building with fancy wood on the walls.
I cannot find a location that would be optimal for two different audiences. I cannot
serve two masters optimally.
If I were to consult with a 40-year-old, he may want me to recommend some good aggressive
growth funds for investment. Or he might want to know how to handle his stock options.
I have no idea! That's not my business and it would be an incredibly inefficient
use of my time to learn about products and service outside of my specialty. If I
start working with people outside of my selected niche, I will soon be working more
hours to become more expert in other areas, I will need to keep track of more products
and develop a presentation for other services. I'd be working more hours, maybe need
more staff, and probably earn less money. I would be far less efficient. The success
in the financial services business is about the ability to use the same approach
and same building blocks for every client.
That does not mean each of my clients gets treated the same. But it does mean
that of the portion of their portfolios that contain stocks, they all own the same
stocks. If they own fixed income instruments, you will find the same fixed income
securities in every portfolio. Mr. Jones may have 60% of his money in equities and
Mrs. Smith may have 30% in equities. But the equities they each own are the same
because the building blocks I use are the same few for each client. And these building
blocks fit well because each client is similar to the other.
But you may be concerned that the niche you select for your focus could decay and
then you'll be out of business. That's not so if you do your homework up front:
- Select a niche you
like working with
- Select a niche that
has enough money to make your practice profitable
- Select a niche that
takes action
- Select a niche that
won't be comparing you to their choices on the Internet
If you see your niche
changing over time, which you will be able to see early because of your specialization,
then adjust your message or your approach. You will be more attuned and be able to
react early because of your specialization.
Here's an example. Up until 1997, I used a seminar title that focused on increasing
client's income. That message became less effective as people became accustomed to
low rates (as compared to the early 80s) on CDs, bonds and other fixed income investments.
Americans in general were much more interested in equity investing. So I shifted
the focus of my message to include this new interest but also focused on the preservation
of principal aspect desired by my prospects, and my attendance at my seminars popped
right back up to previous levels.
If you want to diversify your clients portfolios, that may be fine. But your own
business is a different context. To flourish, focus.
Larry Klein
is a CPA, Certified Senior Advisor and he holds an MBA from Harvard Business School.
His company, NF Communications, produces programs he personally tests, that enable
stockbrokers,
financial planners, investment advisors and insurance agents to rapidly grow their
businesses. His programs are in use by reps at most major securities firms, many
NASD firms, and by independent agents as well as captive agents with large, well-known
insurance companies. You can download additional details and reports on improving
the quality of your clients from http://www.nfcom.com or call 800-980-0192
|
