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This is part one of a ten part series on marketing a new RIA. Read A Marketing Guide for RIAs for a full overview. To view the installments in this series, select “RIA Marketing Guide” in the left margin.
As a new Registered Investment Advisors (RIAs), you may find yourself in a difficult marketing position. You need all the business you can get, but you don’t have the time or money to market to those prospects with sufficient wealth to meet your minimum fee .
You understand that mass marketing is inefficient, but the notion of narrowing the field of potential clients seems illogical. When every dollar counts, most firms can’t conceive of turning away business. In order to survive the first few years, every dollar and every minute must be spent wisely. For this reason, choosing a niche market is essential for the success of a new RIA.
A niche market refers to a specific subset of potential clients that have similar characteristics and needs which are not currently met by the competition. A niche market should be sufficient in size to be profitable, but limited enough that there aren’t too many other advisors serving the same market. You may ask yourself, “If defining a niche market is limiting potential business, why should I engage in niche marketing?” The answer is clear: niche marketing dollars will be more wisely spent and produce more effective results than broad marketing.
To fully understand why niche marketing works for a new business, let’s look at an example. Let’s say you decide to use direct mail to market your business. One person receiving one piece of direct mail will most likely not call your office. One person seeing your direct mail piece a dozen times is much more likely to place a call. To effectively market your business, the same people need to see your same message over and over again.
Using this example, if you were only trying to reach one person 12 times to encourage him or her to call your office and each direct mail piece cost you $1 (including printing and mailing costs), you would spend $12 on marketing. That may not seem like much, but let’s say you are trying to reach everyone in town who might have money and there are 100,000 people over the age of 25 with a job. You would spend $1.2 million (100,000 people * $12/person) on marketing with no guarantee that any of it is going to lead to a new client.
However, if you clearly define a niche market of clients you want to work with, say couples who have children under the age of 5, you may find 3,000 people matching your criteria, and it would only cost you $36,000 (3,000 people * $12/person). In addition, if you chose a message for your direct mail piece that resonates with the unique needs of your niche market, the response rate increases. So not only are you spending less money and increasing the response rate, you end up with the types of clients you want.
Seems pretty obvious, right?
You can substitute any marketing activity in the example above and take away the same conclusion. Instead of sending direct mail, you could spend dozens of hours and hundreds of dollars a week attending networking events hoping to find someone who will want your services. Or you could spend fewer hours and fewer dollars networking with the exact people you want as clients and spend the rest of your time and money on serving existing clients and building infrastructure.
