When properly implemented, client segmentation has the potential to significantly improve the growth rate and bottom line of an RIA.  Client segmentation even has the potential to bolster RIA efficiency and client retention.  The challenge lies in determining and implementing client segmentation the right way.  Let’s delve into the process and benefits of client segmentation for financial advisors.

Why You Should Consider Client Segmentation

Client segmentation divides clients into tiers based on specific criteria in order to match with the value the client provides to the firm.  In a study from Fidelity Investments, firms that segmented their client base had more assets under management (AUM), growth in AUM, and had more clients with $1 million than firms that didn’t segment.

Segmentation gives you a better understanding of how to best serve clients, regardless of size or revenue. When you have a better understanding of a client’s economics and how they contribute to your firm, it’s easier for you to shape your client base over the years. You can gain a better understanding of your client’s needs and desires and this helps you market and sell more effectively.  This also ensures that clients stay with your firm longer. By understanding your clients and targeting them more effectively, you’ll be able to drive customer loyalty.

How to Implement Client Segmentation

The common criteria used for segmenting clients are the client’s AUM and the revenue they generate for the firm. RIAs will then look at what services are offered for each tier, the cost of those services, and how the services will be delivered.

As an example, it might make sense to charge hourly for clients with comparably few assets as they do not generate a significant amount of revenue for the company.  Alternatively, it might make sense to charge a flat rate for those with a considerable amount of assets.  Clients that are the most profitable might be provided with planning guidance as a component of the overarching fee without an additional cost tacked on.

Segmenting clients also helps in terms of the division of labor.  As an example, senior wealth managers should be tasked with managing top-tier clients, providing more valuable clients with direct access to a partner at the firm.  Clients in lower tiers should be assigned wealth managers and junior advisors who are lower on the RIA totem pole.

Client segmentation can even prove helpful in terms of the time invested in meetings as it sets the stage for firms to better allocate resources in accordance with each client’s specific value.  Clients in the highest tier should be provided with ongoing access to firm advisors while those in lower tiers can be provided with review meetings in-person.

Tips for Client Segmentation

AUM is central to client segmentation, yet it should not be the sole figure used to segment clients into specific tiers.  As time progresses, more RIAs are expanding their scope beyond AUM to additional figures and metrics that tell the entire story of a client.

As an example, data stemming from sources ranging from questionnaires to email analysis, client meetings, and beyond can be used to segment clients.  Though there is the potential to drown in the seemingly never-ending pool of data, some of the data analysis can be automated through client relationship management systems (CRMs) and other high-tech solutions.

It’s also important to be disciplined and objective when evaluating clients. Not every client can be placed in your highest “A” tier, no matter how much you may like the client. It’s also important to review your clients and the segments you’ve created every six months, or at least annually.

Contact Bridgemark Strategies Today

Bridgemark Strategies is a leading recruiting, consulting, and M&A specialist.  Our team helps advisors assess and negotiate their search for a broker dealer, RIA, or strategic partner.  Our unparalleled industry success sets the stage for advisors to find their next firm. Contact us at (866)266-8823 or on the web through our contact form to schedule a confidential discussion and learn more about our services.