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Client Segmentation in Wealth Management
VRL Publishing Ltd, Sep 2008
This report provides all the necessary information on client segmentation in wealth management, and analyses the latest global research on its adoption, industry best practice and theory. This data and analysis is combined with in-depth expert interviews, as well as practical examples of how leading firms have applied client segmentation to achieve differentiation and target prospective clients more effectively through understanding their needs.
Segmentation is the practice of using various predefined criteria to subdivide wider markets into distinct groups, the members of which share similar traits.
The structure of a segmentation model combined with the flexibility to meet individual client needs is widely regarded as best practice in achieving a truly client-centric approach.
Many firms have not applied segmentation as they see it as cumbersome to implement, and in some ways contrary to the ethos of an industry that is founded on cachet and exclusivity.
In practice many wealth management firms have a richness of information on clients due to Know Your Customer requirements that FMCG firms, for example, would instantly capitalise on.
The successful firms that are antisegmentation have very specific and original business models, and even they admit that segmentation is useful in some instances and happens naturally to a degree.
Wealth management firms have been slow to adopt segmentation. Assets under management (AuM) is the traditional easure by which the industry categorises clients. While there are advantages to this approach from a profitability perspective and as a proxy for identifying clients’ needs, there are severe limitations to using this fairly blunt instrument as the sole means of segmentation.
This report explores alternative means of segmenting clients using other economic, demographic, behavioural and psychographic criteria and explores the potential benefits of a multi-layered approach. It also looks at why wealth management firms have been late adopters of client segmentation, inhibiting factors and some potential catalysts and solutions. Contributory factors such as harnessing the support of relationship managers, effective IT systems and aligning segmentation and regulation are also examined. By looking at the arguments for and against segmentation, analysing the pros and cons of different theoretical approaches, as well as exploring different firms’ segmentation schemes in practice, it aims to direct firms towards an approach that is suitable for them.
This report explains:
- Moving beyond AuM as the primary method of segmentation….using behavioural, demographic, economic and psychographic factors to create a great client experience
- Understanding and banking emerging and high growth segments, including sports, media and entertainment
- Segmentation as a driver of brand, product offering and service level
- Leveraging compliance data to create a competitive advantage
- CRM tools reviewed and assessed
- The lessons from niche players
- The barriers to implementing segmentation
Answers the following:
- At a business model level, should my firm target a certain niche or focus our offer differently to target clients from across the wider market?
- Potential growth or profitability of different segments is key to the success of my firm – how do we find out which clients are most profitable or growing fastest?
- How can we segment while avoiding giving the impression that we are shoehorning clients into boxes and standardising behaviour?
- Profitability is key and while a ‘segment of one’ approach is an ideal, it is rarely practical or cost effective. What’s the solution?
- It is difficult for my firm to articulate what is different about us. How do we become known for something specific and differentiated which clients really want?
- Segmentation is too difficult. Where do I start?
- How do I adapt the firm’s IT systems, get private bankers onside or to focus on this in the midst of overwhelming business as usual projects, such as regulation?
Industry Job Title
What are they looking for?
- Wealth management/private banking Chief Executives/ Chief Financial OfficersUsing client segmentation as a means of determining business models, targeting. Chief Operating Officers The IT and communications implications of adopting
- and implementing a segmentation approach Marketing and branding professionals Using segmentation as the basis of targeted and costeffective
- marketing. Wealth management brands are often indistinct and segmentation can help to address this. Change management For the change management and restructuring implications of implementing a segmented approach,
- avoiding common HR and IT pitfalls. CRM providers and in-house I.T. Staff IT/Systems Providers IT is a key facilitator of segmentation and CRM
- and desktop systems are now able to capture data appropriate for a client segmentation scheme HNW IFAs Heads of IFA firms IFA firms looking to target the HNW space will want
- to understand industry theory best practice and look at case studies to establish the competitive environment. Retails banks and Investment banks C level executives Retail and Investment Banks in or looking to enter the
- affluent and HNW space will gain insight into industry theory and best practice, plus find case studies useful in
- informing their approach.
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