How Client Segmentation Can Boost Advisors’ Bottom Line

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It might seem natural that financial advisors would give different kinds of clients different kinds of service. But that’s simply not the case.

Abby Salameh

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Photo Illustration by Staff; courtesy of CAIS

“Advisors tend to give many of their clients the same level of attention,” says Abby Salameh, chief marketing officer at CAIS, an alternative investments platform for financial advisors. “It’s a strain on bandwidth. You need to spend the right amount of time on the right type of client for efficiency and profitability using client segmentation. But it’s an underused tool.”

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Client segmentation divides clients into different tiers based on a set of criteria that best matches the extent of services that are offered with the client’s value to the firm.

More firms need to segment clients to boost their bottom line, agrees industry consultant Eliza DePardo.

“Understanding how client type contributes to your firm’s financial performance is a critical factor in helping to shape a client base over the years ahead,” says DePardo, co-founder and former director of research firm FA Insight, which was acquired by TD Ameritrade. “It’s also a foundational step to support the right mix of services and pricing by segment to ensure profitability.”

,Segment for Success,” a Fidelity Investments research study, found that firms that segment their client base had more assets under management, more growth in AUM, and more clients with at least $1 million than firms that didn’t segment. (For a primer on how to segment, see the Fidelity study titled “Four Steps to Successful Client Segmentation,

“Segmenting provides an objective measure of how to profitably serve clients, regardless of size or revenue model,” says Lisa Crafford, head of business consulting at BNY Mellon Pershing. “It also allows firms to stay ahead of talent needs, such as when and who to hire, by tracking growth and understanding how many hours it takes to serve each segment.”

Advisors need to define their ideal clients and spend time and resources on finding those who fit that profile and match services with their needs to align with the value of these clients provide the firm.

New York-based wealth management firm Wealthspire Advisors, for example, divides its clients into three segments: “pathways,” for younger clients who might be described as Henrys (high earners, not rich yet) with investible assets between approximately $100,000 and $1 million ; a standard service tier for clients with between $1 million and $20 million in investible assets; and an upper-end segment for wealthy family office clients that offers more customized services such as trust and estate planning, family governance, and intergenerational education and planning.

“You want the best alignment of delivery and services with client needs,” says Wealthspire Chief Operating Officer Eric Sontag. “You want to improve the client experience and also operate more efficiently and profitably.”

Eric Sontag

Photo Illustration by Staff; courtesy of Wealthspire Advisors

Setting up pathways for younger clients allows Wealthspire to attract and service younger clients the firm otherwise would not consider a target market, explains Sontag. “These are clients who are in an accumulation phase of building wealth and are fee-sensitive.”

To service this segment profitably, Wealthspire combines

Charles Schwab

Institutional Intelligent Portfolios digital service and limited human advice, Sontag says. The firm’s website explicitly states that pathways is not for clients who want margin loans, separately managed accounts, or “customized investment options.” Instead, it’s for those who prefer “self-administration” and investing in index funds.

CAIS’ Salameh, who was chief marketing officer for RIAs Private Advisor Group and Hightower Advisors, says advisors should begin the segmentation process by doing a profit analysis on clients, using criteria such as how much revenue clients generate for the firm, their “connectivity” as referral sources for new clients, and how much assets clients hold outside the firm.

AUM is another commonly used criteria, although some firms, including The Colony Group, choose to segment by matching service to the complexity of a client’s needs.

“Segmenting by client size is outdated,” says Michael Nathanson, CEO of Boston-based Colony. “You only achieve optimal results with comprehensive financial planning. Segmenting should be about the specific needs of the client.”

Michael Nathanson

Photo Illustration by Staff; courtesy of The Colony Group

Colony segments groups of clients “that have common needs because of their shared circumstances,” says Nathanson. Those cohorts include current…


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