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3 Ways to Segment Your Client Base

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As service-oriented advisors, we often tend to spread our time evenly over our clientele, regardless of their level of wealth. However idealistic this may be, it’s neither pragmatic nor prudent. I would suggest that the only situation where “equal time” may be acceptable is if you are able to spend an adequate amount of time on all clients, and still have additional capacity. In other words, you have time left over. 

Even then, this “time to spare” could be spent on more productive ventures, such as  developing a deeper relationship with current clients or finding new ones. What’s the solution?

Try categorizing your existing relationships and provide differing levels of service for each. Although this topic has been well discussed, I hope to offer a few new perspectives. Client segmentation can be accomplished in several ways. Let’s take a look. 

Segmentation #1: Total New Worth
One way to segment your client base is by total wealth. In other words, by net worth. This is often structured where the fee is a percentage of the client’s wealth. This arrangement also removes an inherent bias that many advisors possess. 

For example, if the client’s wealth is disproportionately tied up in real estate  or a privately owned business, and if the advisor is asked to render advice on further investments in “non-financial” assets, the advisor would be impartial in his recommendation. However, if an adviso’rs income is derived solely from assets under management, then they would of course, want to increase AUM. 

Segmentation #2: Total Financial Assets
Another option is to segment by ‘total’ financial assets, which would include accounts held away from you. Many clients have, either by choice or design, chosen to spread their financial assets among multiple advisors. Right or wrong, their reason is often to “spread out their risk.” They may hold the belief that if one advisor makes a mistake, another may not. 

Under this segmentation approach, you would provide “enhanced” treatment for wealthier clients, even though they have not moved outside assets to you. However, by placing them in a “higher” category, they may come to see you with greater value.

Segmentation #3: Financial Assets Under Management
In this segmenting approach, clients are categorized according to the assets under your purview. The downside of this arrangement is that if a client does have assets with other advisors, this structure would reduce their level of service, which may limit the probability of growing the relationship. 

To sum up, there are many ways to segment a clientele, and each has its pros and cons. Therefore, it’s important to carefully consider your method prior to acting. 

Thanks for reading and have a great week!