As the ranks of the wealthy grow, banks are going to have to better segment their services to accommodate these clients, according to a report from Boston-based research firm Cerulli Associates.

To do this, the banks can rely on asset managers to help refine their products, which will improve services for all customers, according to Cerulli’s report, titled, “U.S. Private Banks and Trust Companies 2023: Adapting Service Models,” released yesterday.

“Banks and other large wealth management firms that can offer distinctly tailored services to specific wealth demographics are able to fine-tune their products, services, and overall service delivery and operational models around the needs of a specific client type. By doing so, [they] are able to provide their clients with an elevated and more precise client experience,” said Chayce Horton, a senior analyst at Cerulli, in a statement.


“In contrast, when firms operate with a singular set of services, they limit the clientele they are able to serve properly to a specific demographic, causing banks to naturally under-serve their ideal clients while also forcing advisors to over-serve smaller accounts,” he added.


The percentage of high-net-worth households, which is defined as those with more than $5 million in financial assets, has nearly doubled since 2011 from 28% to 44%, according to Cerulli.


“As targeting high-net-worth and ultra-high-net-worth households becomes pivotal for success in the wealth management industry, many banks have sought to grow their services aimed at these households while maintaining traditional mass-affluent-focused business units,” Cerulli said. Ultra-high-net-worth households are defined as those with more than $20 million in the investable assets. “To strengthen and secure their competitive position, banks must implement defined client segmentation strategies to better address the needs of the current and future wealth demographics they service.”


Despite the growing need for client segmentation, 23% of banks have no notable operational distinction in how they serve clients of different wealth levels, and another 32% have only two unique segmentations, Cerulli said.


Yet bank officials see the need for segmentation. Nearly three-quarters of bank officials said segmentation by wealth levels improves the quality of services offered across the board. At the same time, 47% said segmentation expands the overall customer base; 41% said it enhances intergenerational relationships; 35% said it creates more profits for the bank; and 29% said it fosters a higher productivity level among the banks’ advisors.


As wealth levels grow, asset managers and third-party providers will become crucial players in helping banks outsource their less profitable or more cumbersome operations. In particular, asset managers can help banks refine the products that are tailored to specific demographics, technology providers can help optimize back-end functions, and third-party marketers can help banks allocate greater focus on their top priorities, Cerulli said.


“Overall, as demographic shifts, service demand increases and competitive dynamics put greater pressure on banks to refine their services for clients and seek out new avenues for profitability, banks will need to consider the benefits of a defined client segmentation strategy. In many cases, the benefits outweigh the drawbacks and requisite investments needed,” Cerulli said.