Surveys
Client Segmentation Underutilized By Advisors - Cerulli
Despite its many benefits, client segmentation is still vastly under-utilized by financial advisors, according to new research by Cerulli Associates.
Only 37 per cent of all financial advisors currently use a formal client segmentation process, according to survey findings in the second quarter issue of The Cerulli Edge: Advisor Edition.
Even fewer (36 per cent) advisors and wealth managers working with clients with a net worth of more than $10 million used client segmentation strategies, according to the report, although the number jumped to 64 per cent for advisors with clients with a net worth between $5 million and $10 million and 48 per cent for advisors working with clients with a net worth between $1 million and $5 million.
“Segmentation is most important if you’re working with clients with between $1 million and $10 million in investable assets,” said Scott Smith, senior analyst at Boston-based Cerulli. “That’s where concerns like estate tax start to become an agenda item and you can’t assume simple scenarios.”
Benefits of segmentation include greater efficiency and identifying “which set of clients offer the most potential to grow the practice over time,” the report stated.
And the need for using segmentation in the current post-financial crisis period is more pressing than ever, according to Smith.
“This is a time when firms are moving from survival to hoping for growth,” he said. “You want to spend your valuable incremental time with your best opportunity clients, as opposed to your neediest clients.”
Successful client segmentation requires advisors to “balance their skill in the art of relationships with their analytical skills.”
Personal relationships with the client was the most popular segmentation method used by advisors, followed by client assets, referral potential, client revenue and ease of working with clients.
These differing factors, and the under-utilization of segmentation overall, present “a real opportunity for service providers to help advisors determine what will work best for them” according to the report.