Serving a wide variety of clients with different wealth levels and financial needs can be unwieldy and inefficient. According to a recent report from Cerulli Associates, one of the ways advisors can increase the efficiency and profitability of their practice is by carefully segmenting clients to help identify those who offer the most potential to grow the business over time.
Segmenting clients doesn't guarantee success, says Cerulli. But it should help advisors allocate appropriate resources to the most promising client segments.
According to Cerulli, 37% of all advisors across the RIA, independent broker-dealer, wirehouse, regional, and bank channels said they formally assigned clients into segmented groups. Advisors at regional firms (62%) and wirehouses (50%) did so the most, thanks to having access to home-office-backed business development programs and staff.
RIAs did the least amount of client segmentation (26%).
At the same time, 17% of all advisors said they currently don't segment clients nor plan to do so. The RIA channel had the highest percentage in that category (34%).
Cerulli found the practice of segmenting clients is greatest among advisors who mainly serve investors with a net worth between $5 million to $10 million (64%) and between $1 million and $5 million (48%).
The reason: Clients in these brackets can have myriad needs requiring a range of products. According to the Cerulli report, " . . . the complex, disparately varied financial needs of these clients can drive an advisor to distraction."
For example, folks in the $5 million to $10 million category represent an inflection point where various client concerns converge. An advisor serving too many demanding clients with dissimilar desires could become a jack of all trades and master of none, concludes Cerulli.
Segmentation enables advisors to pinpoint the best-fit financial solutions for their clients' needs. For advisors, that means more efficiency, less costs and happier clients (and advisors).