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Why Advisors Need to Segment Their Clients: Cerulli

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Client segmentation is critical to an advisory firm’s growth, productivity and profitability, according to new research from Cerulli Associates.

In a report released Friday, Cerulli said segmenting clients and prospective ones lays the foundation for an advisory practice’s service model and pricing structure.

Advisors will be able to give the highest-priority clients the positive experience they expect, while still providing a reasonable level of service to non-ideal clients when necessary.

According to Cerulli, many advisors struggle to design a successful business model, and often allowing it to grow organically rather than adopting a well-planned approach.

The most successful advisors, Cerulli said, tend to excel at delivering a solid experience to the most profitable clients, but can feel challenged in dealing with less profitable client relationships. Personal connections with a client, for example, can make it hard for advisors to scale back on these relationships.

“Effective segmentation tends to be difficult for advisors to establish and implement,” Kenton Shirk, associate director at Cerulli, said in a statement.

“Advisors struggle to prune clients who are now outside their ideal profile, but became clients when they begin their career, because of a sense of obligation and worry that turning down these non-ideal clients will strain an existing relationship.”

The advent of eRIAs, or robo advisors, can help advisors serve smaller or less profitable client segments because they provide a high degree of automation and scale.

Cerulli said that using eRIAs to target smaller prospects may be a very successful approach for advisory practices that execute well, but could be a distraction for others.


The report said banks able to segment their clients into peer groups can better serve those that need the most attention and have the most complex requirements.

As they consolidate their due diligence platforms and centralize investment decisions, banks will uncover additional opportunities in existing client relationships.

As well, Cerulli said, banks must leverage their inherent strengths, namely, lending and deposit taking, as cross-sell opportunities, as these strengths cannot be easily duplicated by other channels.

The report said that as more and more young investors use a self-directed investment approach, it is incumbent on banks to build on their existing relationships. Asset Managers

Cerulli’s research found that although some asset management firms have models that try to determine profitability at the wholesaler territory or advisor level, most struggle with designing strategies for optimizing distribution.

Product providers, Cerulli said, have to move beyond overall asset levels in analyzing their platform’s scale, and probe more nuanced aspects of their firm’s dynamics to understand the true scope of their opportunity.

Cerulli’s findings indicated that, overall, advisors direct more than half of their clients’ assets toward funds recommended by their home-office research team, but these figures vary from firm to firm.

It said asset managers’ key account personnel have to work closely with their platform counterparts to secure featured placement on those platforms that maximize long-term asset flows.

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