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Financial Planning > Behavioral Finance

Why sorting clients by age, gender is a mistake

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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.”

That means that in the process of segmenting their client base by behavior rather than demographics, an advisor or firm might find some of their clients aren’t a good fit. “Earlier in an advisor’s career they aren’t as targeted,” Jacques said. “They figure out their strengths along the way and then they hone in on the top one or two, but at the beginning of their career, they’re trying to ascertain, ‘Maybe can I work with three or four of these types of segments.’”

Segmenting their client base this way helps advisors craft a more targeted value proposition, which “directly affects how a customer perceives a firm,” according to Jacques. “It also directly affects how deep the relationship is: how many financial products they buy, how much share of wallet they have with that one institution or one advisor.”

And because clients are segmented based on their history and relationship with money, it helps with intergenerational wealth transfer as well, Jacques said.  

“This is the biggest silver bullet I’ve ever seen in the industry,” Jacques said. “I’d encourage advisors that doing what is best for the client does not stop at product recommendation. It’s treating the client how they want to be treated, and therefore making the role of the advisor valuable. Without getting into behavioral segmentation, ultimately the role of the advisor is devalued and could become obsolete.”

See also:

Avoid these 5 goal pitfalls, or else

5 rules for killer email campaigns

Meeting a prospect at a social event: the right way to network


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