Advisory firms are trying to figure out how to leverage their networks and technology to profitably expand their client bases.
Client segmentation strategies can provide that opportunity when firms align their resources properly.
David Edwards, president of and wealth adviser at Heron Financial Group in New York, is a proponent of segmentation, or dividing the client base into different market segments and deploying different service models to serve each market.
“Our bread-and-butter clients today are baby boomers,” he says. “But if our client base is only people 55 and older, 10 or 15 years from now, we won’t have a very valuable firm as those clients spend down their assets in retirement.”
Consequently, Heron Financial Group is signing on Generation Xers and millennials to widen its client base, Edwards says.
The firm is also trying to bring in African-American clients and same-sex couples and trying to recruit advisers to specifically serve these markets.
Based on income, the demographics at Heron Financial break down this way: Executive families and business owners with $1 million to $10 million in assets generally work with Edwards. The next two segments include high-earning but not yet rich clients -- dubbed “HENRYs” -- who are 25 to 39, and female professional clients, ranging from 35 to 60.
“You cannot be all things to all people. Firms must decide whether to focus on individual or institutional clients and target asset levels,” Edwards says.
“We don’t go after client families with $25 million because our service package is not equipped for the needs of families at that level,” he says.