It's an understatement to say that the financial advisory business is becoming a huge part of a CPA's world. In fact, according to The VIP Forum, the supply of potential clients in this area has risen dramatically. Why do I say that? According to a recent survey, the growth in the number of U.S. millionaire households has climbed from 2.1 million in 1994 to 5.4 million last year.
Mark Hurley, the president of Undiscovered Managers (based in Dallas), who not only has authored two major research papers in the investment management business, but served as a Presidential appointee in the Bush Administration (Part 1) at the Office of Thrift Supervision, believes that the advisory business is about to undergo a radical transformation and will soon shift from a collegial, almost academic environment to a total war for current and prospective clients. "While these changes threaten the profitability of every firm, they also offer owners of advisory businesses immense opportunities to build great economic value and personal wealth." Today, large, well-capitalized companies are entering the business along with thousands of new, smaller competitors.
So, if you have an advisory business, you pretty much have three options: You can do nothing at all and concentrate on filling out 1040s (which may be perfectly fine), or you can try and become a dominant competitor in this market, or you can develop a niche strategy. I sort of like that last one.
Hurley points out that there are five steps to building a niche advisory business: Develop specialty services, broaden generic services, improve efficiency, develop a feasible strategic plan, and institutionalize business.
In terms of size, he maintains that niche businesses will be relatively small organizations and that a successful niche competitor will need to have at least $400 million to $500 million under management.
Hurley also believes that there are hundreds of available niche opportunities today with only a few niches actually taken but with what he calls a "benign environment" that will not persist. Accordingly, he feels that the future is extremely bright for advisory firms that decide to reposition themselves for a very different future. "As niche competitors, they will be highly profitable companies that provide services that significantly improve the lives of their clients."
There is a narrow window to act. The bottom line, he says, is that the decisions made today will decide the future, and the "winners will seize the opportunity that lies before them." It might be something to chew on here.
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