Financial Advisors: Developing Your LGBT Niche

Financial Advisors: Developing Your LGBT NicheToday, more and more advisors are targeting their practice to certain niches, which may include demographic groups, specific service circumstances or philosophies.

A study from Charles Schwab indicates that 67 percent of advisors rank asset growth as a top priority in the next few years. Yet, competition is growing and it’s getting harder to stand out. Being creative when looking for new clients is essential.

“A niche focuses on a community that you can define, such as business owners in transition or the LGBT [lesbian-gay-bisexual-transgender] community, while a technical specialty focuses on a subject matter, perhaps some arcane area, such as sudden wealth,” says Mark Tibergien, CEO of Pershing Advisor Solutions and co-author of Practice Made (More) Perfect.

Specialist practices appear to be more lucrative than their generalist peers. Research from Cerulli Associates found that while only 15 percent of advisors concentrate on a unique clientele, their practices accounted for 29 percent of overall advisor assets as of the end of June 2013.

The growth rates of niche practices support these findings.

“With generalist practices, growth is organic — a gradual straight line rises, at best, over time,” said Michael Kitces, certified financial planner and director of research with Pinnacle Advisory Group during an interview with CNBC. “But when niche practices are established, I’ve seen exponential growth rates in just three or four years,” he explained.

“Look at other professions — doctors, lawyers, accountants — [and] the specialty practices always make more,” Kitces said. “It’s the natural progression of a profession.”

A great example of a specialty group is the LGBT community –  it is very much on the minds of wealth managers these days and has been for a number of years.

The numbers are compelling. Gay men and lesbians own more homes and cars, travel more, spend more on electronics and have the largest amount of disposable income of any niche market.

The National Gay & Lesbian Chamber of Commerce estimates a total LGBT population of 16- 20 million people and 1.4 million LGBT-owned small businesses in the United States. What’s more, according to the U.S. Census Bureau and the Urban Institute, two-thirds of same-sex couples own their own home and close to one-third of LGBT individuals have an annual income above $100,000.

If that doesn’t say significant buying power, then consider this: the need and demand for specialized services for the gay community is both substantial and growing.

While same-sex marriage is now legal in 38 states and the District of Columbia, the LGBT community still faces unique financial situations regarding estate planning, trusts, wills and transferring assets. Additionally, the community has a higher expectation of its primary provider or advisor of financial services.

When searching for your specialty, remember to research items such as requirements. For example, to work with the LGBT community, financial advisors should have the Accredited Domestic Partnership Advisors designation. This designation tells the LGBT community that the advisor has been trained and certified on key issues affecting same-sex couples and domestic partners, including wealth transfer, federal taxation, retirement and medical issues.

Advisors and firms targeting the LGBT community also need to make sure they support the community in other ways. “There are a lot of companies coming into this space, but when it comes time to make a decision, those in the market want to know if the companies are investing back in the community and if LGBT companies can bid on supplier diversity contracts,” Justin Nelson, co-founder and president of the Washington, D.C.-based National Gay & Lesbian Chamber of Commerce told wealthmanagement.com. “Companies need to do their due diligence to build a relationship with us, because we’re a very brand-loyal segment.”

Wealth managers must also stay current, said Kevin Cathcart, executive director of Lambda Legal, a national legal organization focusing on LGBT civil rights. “This is an area of the law that’s evolving at a rapid clip,” Cathcart said. “I tell clients that they want to  work with advisors and firms who are keeping up with changes happening now and keeping an eye on those coming down the road.”

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