Money Markets

A slew of start-ups are storming the personal-finance industry by targeting populations that traditionally have been underserved

What do women really want? Some start-ups think the answer is customized financial advice and business services. Those companies want to be the vehicle through which women do all their money-related tasks: paying bills, buying stocks, seeking loans, selecting insurance, and so on. They insist that women's financial needs are different from men's, especially because women tend to earn less than their male counterparts yet live longer lives. The thinking is that those two conditions have created a distinct marketing niche -- a "niche," mind you, that comprises 51% of the U.S. population.

Do women truly need specialized financial attention? Predictably, the founders of the aforementioned start-ups believe they do. They cite the needs of the aging baby-boomer market -- a megapopulation of educated women now entering their peak years of earning and spending. Those women, the first female generation to wear the proverbial pants of financial planning, will begin to look for advice on the Web and elsewhere. And the information that they'll need will not only cover the basics but also emphasize "more relationship-oriented and life-stage topics than bottom-line transactions," says Liz Davidson, founder and CEO of Financial Finesse, a company in San Francisco that's dedicated to serving women's investment needs.

Such target marketing -- be it to women or to any other population subgroup -- dovetails nicely with the audiences that already exist on the Internet. "For some time, the Internet has been aggregating people in communities," says Chris Musto, director of financial services and an analyst at Gomez Advisors Inc., a research firm in Lincoln, Mass., that focuses on Internet commerce. "So a start-up can work with sites that have already congregated certain groups." Indeed, the Web -- already home to such affinity sites as Networks,, and -- lends itself to businesses hoping to attract a given demographic.

Still, common sense suggests that all personal-finance customers -- regardless of gender, ethnicity, or sexual orientation -- would want the same commodity: trustworthy advice. Yet the specialization of personal-finance businesses, both on and off the Web, is well under way. Name a target market -- teens, Hispanics, newlyweds, high-tech workers -- and you'll find a financial start-up whose raison d'être is serving it.

Wrapping it up
Lenda Washington first had the notion of putting a female spin on traditional investment products during her days at PaineWebber. As a thirtysomething junior broker learning the art of cold calling, she was taught to ask, "Is your husband home?" if a woman answered the phone. For Washington, those days of making cold calls inspired the idea for a business targeting female investors.

Sure enough, Washington's new start-up is now calling on women to buy its first product. The company, Allison Street Advisors, based in Washington, D.C., is selling an investment vehicle called a wrap account, which gives customers with $250,000 in assets access to big-name institutional money managers. (Normally, that kind of access requires $5 million. A wrap bundles smaller amounts into an aggregate that's still worth a manager's time.) For years, brokerages have sold wraps as an investment option. Allison Street's wrap has a novel twist: the managing institutions are owned by women or minorities. Washington hopes her wrap fund will appeal to women, minorities, and institutional investors such as schools and pension funds -- all of whom, she thinks, will appreciate the precept of investing through female- and minority-owned firms.

The obvious issue is, Wouldn't the potential return on investment matter more to an investor than conscientiousness about social causes? Washington, who's African American, doesn't disagree. But she stresses that study groups show that investors have an affinity for advisers of a similar gender or ethnic background -- those "who 'get them' and share common experiences," she says. Her concept is no different in principle from an environmentally aware mutual fund, for which performance is "the meat," but "the social ticket is the gravy," she says.

Getting minority-owned money managers to sign on was the easy part. The hard part has been persuading the Merrill Lynches of the world to offer Allison Street's wrap fund among their investment products. The sales challenge, besides navigating through bureaucratic straits, is convincing brokerage firms that customers will favor Allison Street's wrap if they are deciding between it and an equally performing but less diversely managed fund.

So far, the fund hasn't been around long enough for its popularity to be compared with that of other wrap funds. At press time, the fund retailed only at five brokerages -- including W.S. Griffith, in Hartford -- and had less than $500,000 in assets under management after six months of active selling. But Washington believes the wrap could be a $50-million fund five years from now. Even if the fund isn't a smash with women or minorities, she says, it's sure to lure investors from large institutions. Which means it just might be a hit with anyone who has $250,000 to invest. "White males would also be interested in top managers," she says. "We're not excluding anyone."

Pride of ownership
"You want two guys buying a one-bedroom condo to be comfortable," says Brian Farley, founder of Pride Mortgage Inc., in Provincetown, Mass. "They don't want a starchy banker asking, 'Where's he going to sleep?' "

It's hard to doubt Farley's credentials on the subject. His $1.4-million business brokered $67 million in loans in 1999, and gay men and lesbians constitute a sizable portion of the business's clientele. It's a population that he classifies as very loyal to good service -- and quick to bolt from bad, even when the bad service comes from a company that's gay-and-lesbian-friendly. "If you don't do a good job, it doesn't matter if you're called Rainbow Mortgage," he says.

Though he chose the name Pride in part because it connotes the gay and lesbian community, Farley says, "we don't market solely to them," and his efforts to target that community are no different from any other group marketing at Pride. In fact, the company's eight other loan officers, some of whom head regional offices, have considerable leeway in how they promote Pride's services. The Seattle office, for example, could market to that city's large Asian population. As Farley sees it, the commission-earning officers' motives are simple: to close as many loans as possible. If that means targeting a niche, many niches, or no niches at all, then so be it.

At the same time, Farley's pitch to the gay community is not some affinity-marketing facade. He's well aware of how that community's needs differ from those of conventional mortgage applicants. Besides facing the ever-lingering issue of potential discrimination, gays and lesbians face the possibility of being outed at their workplaces when a lender, seeking employment verification, sends paperwork to employers that lists the names of both applicants. There are also complications surrounding breakups of home-owning couples: an exiting partner will often neglect to notify the lender of the change in status and is still bound to a mortgage even if his or her name has been removed from the deed.

Farley founded the company in 1998, and he generated $700,000 in revenues as Pride's only loan officer for most of that year. By year's end, he was ready to bring on more loan officers. Rather than expanding locally, Farley simply opened offices wherever prospective employees happened to live, which is why Pride's non-New England locations are in the random states of Washington, Nevada, Florida, and California. Coordinating their efforts hasn't been a problem, because loan officers don't need much day-to-day management, and all loan applications are electronically sent and processed at the company's operations center.

Farley has a wait-and-see attitude about further plans to expand. "There's no rock-solid business plan," he says. One thing he knows for sure: niche marketing will continue. In fact, Farley is touring nationally to speak on the topic for Mortgage Originator magazine. "We've found," he says, "that niche marketing is the best way for us to get into a city and do a good job."

The young and the eager
Todd Romer's initiation into the world of personal finance began at 15, when he watched his father use a magnifying glass to scan the small numbers of the newspaper stock listings. More curious about bulls and bears than birds and bees, Romer asked for a lesson in where to invest his lawn-mowing money.

Now 32, Romer has started a magazine called Young Money, based in Loveland, Ohio. He'd had the idea since college, when -- despite what he'd learned from his dad -- he found the personal- finance magazines of the adult world both too difficult to understand and "too targeted to the married, working adult." And so, after six years of building his own nest egg as a salesman for Syncor International Corp., a publicly traded pharmaceuticals company, Romer launched the magazine that he'd longed for since boyhood.

With nine issues on the books and a barely profitable first year based on $275,000 in sales, Romer is pleased with the project so far.

In typical new-economy fashion, he isn't just trying to sell magazine ads; he's hoping Young Money's Web site can become a popular destination for preadult investors. He's struck a deal with Stein Roe to resell that company's mutual funds at and is transforming his site -- now just an online face for the magazine -- into a transaction-oriented one that he describes as "E*Trade for kids," where they can do online trading with very little money.

So far, Young Money's audience has been composed, in large part, of teenage boys. Romer didn't plan it that way, but he believes he can parlay that following into ad sales because he can tell advertisers that he has "a young male readership that can't be seen outside of Thrasher," a skateboarding monthly. Romer doesn't know why his readership is mostly male, but he guesses that it's for the same reasons that business magazines have always had larger male audiences. These days, as more teenage boys ponder forgoing college for high-tech jobs or starting their own companies, his young male audience seems larger than ever.

Because Young Money's audience is driven to succeed, Romer thinks he can convince advertisers that his readers are more than "just boys"; they're the boys who'll make a difference. "We can say that our readers are savvy, they take action, they want to get ahead," he says. It's not lost on him that potential investors would also have an interest in a Web site that attracts teenage boys, particularly those with a high-tech or entrepreneurial bent. Romer himself is wasting no time courting angels and venture funds. "We're doing a full-court press on the investment community," he says.


Does Niche Marketing Make Sense?

Personal finance is a hot topic. These days it seems that people everywhere are more conversant about money and investing than they were just a few years ago. That's largely because the nation's record prosperity has brought unprecedented wealth to many different groups, including women, minorities, and other demographic subsets. Hoping to reach those prospective investors, a bevy of start-ups are specifically targeting one group or another with their finance offerings. Will target marketing work? We asked Cheryl Russell, demographer, author, and editor-in-chief of New Strategist Publications Inc., in Ithaca, N.Y., to tell us.

Inc.: For personal-finance start-ups, is simply targeting a niche enough to lure customers?

Russell: Only if the start-up also provides products and services that are worthy of attention. Because women live longer and are often widowed, they will have different financial situations than the general market will. But whether those differences alone will attract women to these start-ups remains to be seen. Financial advisers worth their salt will customize a plan to suit the individual customer. So does the field require a Web site just for women? I have my doubts.

Inc.: But the start-ups keep coming, and they keep attracting tons of funding. Why will they have such a tough time?

Russell: It'll be difficult for them to get people's attention. The giants have the advantage already. The start-ups will have to offer something more than the financial advice you can get anywhere, or they somehow have to be perceived as cool or hip. Otherwise, they'll get lost in the shuffle. On the Web, the cream is already out there, and it's hard to get people to change their Web patterns. It's like getting people to watch new TV shows: a daunting task. You almost have to use traditional forms of advertising, like TV and radio, which can get very expensive.

Inc.: So where will all those personal-finance start-ups be five years from now?

Russell: That's anybody's guess. It's a huge pie. In just about any business area, you end up with two or three dominant players, and business on the Internet is no different. Women might emerge as one separate area, especially if the start-ups capture a lot of the baby boomers who are now in their mid-fifties and are financially peaking. But for other targeted groups, like the superwealthy or high-tech workers, we're dealing with more myth than reality. For most of the country, having a lot of wealth doesn't define your twenties and thirties. That's the type of niche that sounds like marketers' just trying to go after the latest thing. It's the sort of fad that's going to change as soon as the stock market crashes.

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