Advisory firms are trying to figure out how to leverage their networks and technology to profitably expand their client bases.
Client segmentation strategies can provide that opportunity when firms align their resources properly.
David Edwards, president of and wealth adviser at Heron Financial Group in New York, is a proponent of segmentation, or dividing the client base into different market segments and deploying different service models to serve each market.
“Our bread-and-butter clients today are baby boomers,” he says. “But if our client base is only people 55 and older, 10 or 15 years from now, we won’t have a very valuable firm as those clients spend down their assets in retirement.”
Consequently, Heron Financial Group is signing on Generation Xers and millennials to widen its client base, Edwards says.
The firm is also trying to bring in African-American clients and same-sex couples and is recruiting African-American advisers.
Based on income, the demographics at Heron Financial break down this way: Executive families and business owners with $1 million to $10 million in assets generally work with Edwards. The next two segments include high-earning but not yet rich clients -- dubbed “HENRYs” -- who are 25 to 39, and female professional clients, ranging from 35 to 60.
“The reason service models are being rolled out today is that the ultra-wealthy have more complex needs,” making it more labor-intensive for advisers and their teams, says Louis Diamond, vice president and senior consultant at recruiting firm Diamond Consultants in Morristown, New Jersey. “It doesn’t make sense to serve smaller clients in the same capacity.”
Moreover, Diamond sees a renewed push at the major wirehouses to focus mainly on high-net-worth and ultra-high-net-worth clients, which leaves “a large, often underserved market below the $1 million level.”
“The top businesses see this as an opportunity to deploy the latest robo technologies or portfolios to service this client base in a very systematic and streamlined fashion with less manpower,” he says.
Edwards fits this mold.
“You cannot be all things to all people. Firms must decide whether to focus on individual or institutional clients and target asset levels,” Edwards says.
“We don’t go after client families with $25 million because our service package is not equipped for the needs of families at that level,” he says.
Likewise, Grant Rawdin, a CFP and the founder and chief executive of Wescott Financial Advisory Group, a registered investment adviser in Philadelphia, says, “You need to understand what your skill sets are, how your company is positioned, who you’re going to appeal to, and align your services with the demographics that is going to be able to pay your fees.”
What separates the winners from the runners-up?
“The highest-performing businesses serve different market segments and deploy different service models to serve those markets,” Diamond says.
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