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Client segmentation for financial advisors: The challenges

Client segmentation has become increasingly important as an RIA growth driver, but it can’t be an afterthought. 

What’s more, the discipline may not be suitable for every firm. 

This third and final installment of our AdvisorEngine® series examining the challenges of implementing client segmentation and some fundamental dos and don’ts for firms ready to take the plunge.

Client segmentation challenges

Some industry executives don’t think client segmentation is a great idea in the first place.

“Ideally, advisory firms should pick a segment based on the size of wealth and demographics and construct an ideal client profile,” says industry consultant Jamie McLaughlin. “Having differentiated tiers is a mistake because you’re relocating precious resources to get assets which may be dilutive of your brand.”

Megan Carpenter, CEO of the RIA consulting and communications firm FiComm Partners, agrees.

“I don’t think client segmentation should be a goal,” Carpenter says. “Instead, my objective would be: ‘How can I not have to segment by fashioning a marketing effort on an ideal client with a similar profile, so there are no multiple levels.’”

Advisors who decide to segment should proceed with caution, says Jay Coulter, who heads the research and consulting firm Resilient Advisor.

“In my experience, the simpler the system, the better the results,” Coulter says. “Over-engineered, complex segmentation systems just lead to failure.”

Coulter recommends no more than three segments: The A-segment represents the top 50% of a firms’ revenue and those clients receive the most attention and result in the highest quality referrals. B-segment clients account for the next 30% of an RIA’s revenue receive appropriate attention, but no more than needed.

The Z segment, Coulter says, “are those families that you want or need to keep serving, but they would receive the lowest level of service. These families would be better served at Vanguard or Schwab, and I recommend telling them as much.”

Indeed, segmentation will reveal how many unprofitable clients a firm has. Coulter cautions, a significant challenge for many advisors, is the “difficult” process of “finding a new home for them.”

Or, as Wealthspire Advisors chief strategic growth officer Jim DeCarlo puts it: “Client segmentation is less about who you say ‘yes’ to and more about who you say ‘no’ to.” 

Determining how to reduce services or time spent with unprofitable clients can also be a challenge. Advisors need to align the time and resources spent with these clients with the value they receive in turn. 

But worries that the client may be upset at a perceived downgrading are often overblown, says Lisa Crafford, vice president and advisor consultant for BNY Mellon’s Pershing. Clients may not notice any difference in treatment because firms haven’t communicated the “breadth and depth of what they do for clients each year beyond investment management or financial planning.”

Maybe it’s time to revamp your client segmentation process. I’ll leave you with this checklist to help get you started.  

Dos and don’ts of client segmentation


    • Invest in a robust CRM system and data analytics.
    • Use your data to drive decisions, not gut instinct.
    • Remember the reason you’re segmenting in the first place: “Don’t forget why you’re doing it, who you’re working with and what you want to accomplish,” says industry consultant Jeff Spears.
    • Be disciplined: “Not everyone can be in your “A” client profile,” says Coulter.  No matter how much you like them.
    • Review clients and segments at least annually, ideally every six months.


    • Overcomplicate segmentation. “Start simple, build on what you have,” says Pershing’s Crafford. “If it is too complicated, you won’t be able to implement.”
    • Confine segments to just the size of wealth.
    • Skimp on costs. You may need to bring on a dedicated resource to manage upgraded data for segmentation. The investment will yield rewards.
    • Overlook perks for your most profitable segments.  Think of loyalty programs in other businesses. Rewards for top clients can include dinners, special briefings and tickets to sporting events.
    • Neglect potential. Just because you’re not serving a niche or segment now doesn’t mean you can’t or shouldn’t in the future.

Read more from this series:

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This blog is sponsored by AdvisorEngine Inc. and CRM Software LLC. (“AdvisorEngine”) The information, data and opinions in this commentary are as of the publication date, unless otherwise noted, and subject to change. This material is provided for informational purposes only and should not be considered a recommendation to use AdvisorEngine or deemed to be a specific offer to sell or provide, or a specific invitation to apply for, any financial product, instrument or service that may be mentioned. Information does not constitute a recommendation of any investment strategy, is not intended as investment advice and does not take into account all the circumstances of each investor. Opinions and forecasts discussed are those of the author, do not necessarily reflect the views of AdvisorEngine and are subject to change without notice. AdvisorEngine makes no representations as to the accuracy, completeness and validity of any statements made and will not be liable for any errors, omissions or representations. As a technology company, AdvisorEngine provides access to award-winning tools and will be compensated for providing such access. AdvisorEngine does not provide broker-dealer, custodian, investment advice or related investment services. AdvisorEngine and Junxure are registered trademarks of AdvisorEngine Inc.

Charles Paikert

Charles Paikert

Charles Paikert has been writing about the financial advisory industry since 2004. Paikert has been an editor for Investment News and Financial Planning and currently contributes to Family Wealth Report, RIABiz and Barron’s. He has also written about the industry for The New York Times and Reuters and has moderated panels at numerous industry conferences, including Schwab IMPACT and Invest. Paikert is the co-author of Madness: The Ten Most Memorable NCAA Basketball Finals.


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