Why sorting clients by age, gender is a mistake

The best way to segment clients in order to predict their behavior requires a look beyond the obvious.

Advisors looking for ways to deepen their relationships with clients should consider using behavioral segmentation rather than demographic to help focus on the needs and preferences of individual clients. Instead of focusing on more obvious markers — age, income, gender, marital status — advisors should segment their client base based on how they want to engage, according to Jill Jacques, vice president and head of wealth management at North Highland.

“Some behavioral segmentations are based on values. Some are based on how people feel about their money and financial services firms. Some behavioral segmentations are based on how people want to engage with advisors and firms, so there are different lenses you can apply to create a behavioral segmentation framework,” Jacques told our sister site, ThinkAdvisor, on Tuesday.

The key to creating helpful segments is to frame it around the experience the client has, Jacques said. “If we think about the human experience of the client, then we get to the right lens. Firms have products and solutions to sell, but at the end of the day, it’s about the client being a human being.”

Advisors should ask, “’What is the client bringing to the relationship that is informing their decision making around finances?’” It could be the way their parents talked about money, the income of the household they were raised in, or life experiences that have shaped how they feel about money, Jacques said. “That plays into how they view an advisor’s and firm’s recommendations, and the thought processes they’ll use to determine whether it’s right for them or not.”

That financial history will also affect how much fear or willingness to take risk clients bring to their decision making, Jacques said.

When creating profiles for behavioral segmentation, Jacques suggested limiting them to five distinct categories. “Typically you can hone in on the top two that you want to focus on,” she said. “If advisors can get really good at at least two of those behavioral segmentations, they’ll start to hone a lot of their value proposition, how they conduct their client meetings and even how they present their recommendation.”

The segments that an advisor creates in his or her client base depend on the core competencies of the firm and advisor, Jacques said. “What we see is it varies on the breadth and depth of products and services offered. It varies based on the niche segment that advisors want to be in, and it can vary really on the length of service of the advisor.”