Client segmentation for financial advisors to grow your client base

Client segmentation for financial advisors to grow your client base

By limiting themselves to certain key demographics, financial services can have difficulty increasing revenue and expanding their business. When it comes to marketing, standing out from the crowd, expanding their client base and growing their revenue, investor segmentation is paramount.

Financial planners spend most of their days helping their clients achieve their long-term financial goals, but planning for their own future is also critical to long-term success. Indeed, without properly planning ahead, financial advisors can stunt their own, as well as their firm’s growth.

Wealth management firms have long offered broad investment services and strategies tailored to meet the wants, needs, buying preferences and values of the majority, including wealthy baby boomers. This approach has historically shown to be effective at attracting the “bulk” of investors.

However, a dramatic increase in competition in the financial products and banking industry in the last decade has made alternative approaches imperative. This is where customer segmentation comes in.

What is niche client segmentation?

Client segmentation, also often called market segmentation, is the division of your customer base (including potential customers) into distinct groups in a given market. One of the greatest advantages of client segmentation is that it targets the commercialization efforts: advisors are no longer targeting a broad pool of prospects. Rather, they are squarely focused on targeted and much smaller niches.

In turn, by developing expertise in a small but up-and-coming niche market, advisors and firms are able to differentiate themselves in an increasingly busy space. It commands greater loyalty, attracts like-minded referrals and enhances overall client service level, while adding long-term value to their offering.

5 steps: how to segment clients

Step 1 – Design your customer segmentation project

This includes defining your goal, scope and deliverables by creating a working plan and getting all major stakeholders on board with this plan. Doing so, you will define customer quality and value and their associated costs.

To design the most cost-effective customer segmentation, there’s nothing better than an all-in-one portfolio management solution that includes a client relationship management (CRM) system, while having the capability to load historical data from inception, display it and use it for analysis. This also helps to manage portfolio data and all relationships and interactions with your customers and potential customers. The more customizable your tool is at the client and asset class level, the better.

Step 2 – Analyze available customer data

This step requires you to define a set of criteria to assess the value of each customer in your database. This ultimately should help you to measure the potential of each customer pitted against other customer segments.

Step 3 – Collect data

This entails building a comprehensive list of customer characteristics (identified in Step 2) and rating them by the level of attractiveness or potential.

Step 4 – Analyze and prioritize

As the name implies, this step involves analyzing your compiled and organized customer data and figuring out what customer segments should be prioritized, based on their ability to reach the highest financial targets.

By using the right portfolio management solution which includes a CRM, you can base your decision on facts. Some of these tools weigh performance based on money and time calculations to provide accurate and consistent performance indicators. Another option is to use a solution that has excellent integration capabilities with other systems such as Salesforce, for example.

In addition, some machine learning tools may provide clustering functionalities, which take large amounts of customer data and regroup them in clusters of similar characteristics that represent inherent segments.

Step 5 – Present and incorporate feedback

The final step to effective customer segmentation requires that you present your customer segmentation plan to the stakeholders and management team. Then, you have to subsequently incorporate their feedback.

In most cases, this specialization will not be firm or bank-wide. Market segmentation will then be more difficult in an organization that hasn’t adopted a portfolio management solution that allows customization at the user or department level.

5 biases holding you back

While biases are part of human nature, experts tell us that most advisors today have significant biases that put their business at risk of missing out on interesting categories of investors.

Five of the most prevalent biases in investing include the following:

  • The man manages the bulk of finances in a relationship (including investment decisions).
  • Women are risk-averse investors who prefer lower returns with known risks rather than higher returns with unknown risks.
  • A couple’s finances are always merged and investments are made jointly.
  • Women and younger investors know less about and are less interested in investing than older men are.
  • Young people are necessarily less attractive investors.

To thrive in an increasingly busy wealth management space, advisors must demystify these biases. They can do this by getting to know and understanding their ideal client segments and by developing a way to offer a unique service model to these segments in a way that other advisors cannot. In other words, they must learn to cater to a pain point or an unmet need.

Top client segments in wealth management

Currently, the top investor segments that show signs of significant and sustainable growth include Women, Generation Z, Hybrid High Net Worth Investors, and Committed First-Time Investors.


Experience it yourself, see the difference