Clients are the centerpiece of any successful advisory business; without them, it wouldn’t exist. But they aren’t all alike in terms of their goals, needs and financial situations. This is where understanding client segmentation for financial advisors becomes crucial. Knowing how to segment your book can help you improve your efficiency and profitability. At the same time, it can allow you to better serve your clients’ needs and help them further their financial goals.
Why Does Client Segmentation for Financial Advisors Matter?
Segmenting clients simply means separating them into different categories or tiers. This segmentation can be based on different criteria, such as age, assets under management or net worth. So why go to the trouble of dividing up your book this way?
“Client segmentation is key to efficient and effective relationship management,” says Mary Sullivan, co-founder of Sweet But Fearless and former regional director at TD Ameritrade.
In other words, segmenting your client list can help you more effectively address your clients’ needs so you can deliver the type of results they’re expecting. This can lead to improved satisfaction for them and increased profitability for you.
“The mistake many advisors make is that they spend more time disagreeing with the company segmentation philosophy and end up product selling instead of relationship building,” Sullivan says. “Every product and service is not the best fit for every client.”
By segmenting relationships, you can ensure that you’re spending your time with clients who want to engage and having meaningful conversations through that engagement, Sullivan says.
Client segmentation can also help you fine-tune your niche strategy and identify unaddressed gaps. By finding those opportunities, you could be better positioned to increase your market share within your niche.
What Client Segmentation Often Means for Financial Advisors
Traditionally, many advisors are encouraged to segment their books by categories based on assets or revenue. For example, clients may be assigned to Platinum, Gold or Silver status, based on how much they have in assets or how profitable they are for an advisor. “Although this may seem logical, it’s actually a very big missed opportunity and a common mistake made among advisors,” says Dennis Schlegel, Jr., co-founder of Emeritus Wealth Group.
Schlegel offers an example of what he means. Say Client A has $1 million in assets under management and generates $10,000 in revenue annually for an advisor. Client B, on the other hand, has $300,000 in assets under management and generates $3,000 in revenue per year.
