Though advisors usually segment their clients to control expenses and enhance their profits, more important is that the practice ultimately makes clients happy as well and helps business development. Segmenting helps advisors answer an extremely important question: "How do we group our clients in ways that make the most sense and provide the services they most need?"

This process forces advisors to look closely at whom they serve best and look at who is not a good fit for their businesses. That allows them to create a better client experience for the investors they want to serve, as well as work in a more economical way.

As RIAs grow and expand their capabilities, they may even choose to serve multiple client segments and design specific service models to meet the needs of each group. (For more on the increasing prominence of investor demographics, see "The Changing Affluent Investor," in the February 2012 issue of Financial Advisor.)

Advisors must use technology to improve their productivity and service.
Don't be surprised if a briefcase full of paperwork is soon replaced by machines. In the future, advisors should be able to sit in their clients' homes or offices and be able to access all financial information remotely. Current and future clients-especially those children of existing clients and younger wealthy investors-will increasingly expect advisors to use technology to give them information and answers immediately, on demand.

Over the last year alone, we have seen technology use rise among RIAs. According to the Schwab benchmarking study, 96% of advisors used portfolio management systems in 2010, while 84% used CRM systems and 83% used e-mail retention. Many advisors also used technology for tasks such as document management, financial planning, trade order management and portfolio rebalancing.

To fully leverage current and future technology investments, advisors should consider three best practices:

Use technology strategically. Firms thinking strategically will view technology as a fundamental component of their business strategy and future success. They will ensure that any technology they consider using can improve the experience they want to deliver to clients, while simultaneously enhancing productivity and freeing up time for advisors to pursue growth opportunities.

Integrate disparate technologies. Going forward, there will be greater demand for integration and connectivity. An RIA's various applications and systems need to communicate and work together. This will help firms eliminate inefficiencies, such as having to manually enter data in multiple systems, and deliver more responsive and accurate client service by allowing advisors and staff to quickly access client data from one single point of contact.

Outsource. Today there are more service providers catering to RIAs than ever-and RIAs are increasingly outsourcing key functions such as IT support (outsourced by 75% of advisors), payroll processing (67%), compliance (38%) and data management (27%). Outsourcing enables advisors to save time, reduce costs and, most important, stay focused on their core competencies of managing relationships and developing new business.

Conclusion
The RIA industry is evolving and becoming more competitive than ever. That means advisors have to start thinking bigger and going beyond their current capabilities if they want to navigate new developments and propel their businesses in the future. They must envision their firms as they want them to look in one year, five years and even 10 years-and start taking steps right now to turn those visions into reality.

Most important, they must build practices that seamlessly blend the best traits of both an enterprise-level business and a service-driven boutique. Making that happen will require advisors to plan strategically for their future growth, to design service models that deliver the highest quality experience for ideal clients and to incorporate technology solutions that ensure maximum efficiency and effectiveness.