It’s no secret that many RIAs are looking to modernize their technology stacks and create a more personalized, digital experience for clients.
Based on my experience, the most successful RIAs that are achieving top-decile organic growth and strong client outcomes tend to share one strategy in common: They are segmenting their business.
Segmentation is the process of dividing an adviser’s client base into distinct groups based on needs, behaviors, profitability, growth potential, complexity and other characteristics.
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With the right structure, advisers can match different clients with the service models, pricing, custodial setups and technology solutions that best suit them.
The result is a streamlined practice structure where larger client relationships still receive the depth of service they need, while smaller accounts can be serviced effectively without draining adviser capacity.
However, when I mention “client segmentation” to RIAs looking to scale, the initial reaction is often skeptical. Many associate it with added overhead, operational risk and more complex workflows.
Without the right preparation, partners and technology, client segmentation can indeed slow advisers down and cause the very friction it is designed to remove.
The good news is that RIAs can take clear, proactive steps before committing to segmentation to ensure it aligns with their broader strategy and timing. With the right partner, advisers can:
Determine if segmentation is right for the practice
Based on their current assets under management (AUM), as well as their appetite for risk, ability to weather potential temporary disruption and goals for growth, advisers can figure out whether their practices are at the right point in their development to implement client segmentation.
This strategy tends to work well for firms that have accumulated more than $250 million in AUM and are outgrowing their initial niche specialization. There will also be some degree of short-term disruption for any firm that adopts this strategy, since segmentation can sometimes involve parting ways with clients who no longer fit the practice.
Run profitability analysis
Using visualization tools, advisers can model the financial impact of client segmentation on their existing books, as well as calculate the cost-to-serve ratio across all segments.
These tools can also calculate what minimum fees would be necessary, following the implementation of client segmentation, to ensure their practices can remain independent and profitable.
Design tier structures
Advisers can work with partners to figure out how many segments need to be created based on their current books and then which service levels and other factors should be assigned to each segment. They can also plan for how to balance meaningful upside with any potential disruption.
Build operational infrastructure
To ensure their technology can support client segmentation, RIAs can prepare their billing solutions for tiered pricing, utilize analytics tools to make lower-tier segments more profitable and configure their CRM systems to track different segments.
Roll out sequentially and manage client communication
When solutions enabling client segmentation have been onboarded, RIAs can roll out the new service models beginning with the top strategic accounts and then continue down the line to lower-margin and at-risk clients.
Advisers and their partners should also deliver personalized messages about any changes — from fee increases to new adviser assignments — to individual clients in a timely manner.
Track progress
To monitor if client segmentation is helping meet desired goals, RIA firms can establish baseline metrics for what success should look like at 90 days, six months and 12 months after implementation.
Outstanding service works best with guardrails. When RIAs attempt to serve all clients the same way, they often end up serving no one exceptionally.
A one-size-fits-all approach doesn’t make sense if you’re working with a $500,000 Millennial couple and a $20 million executive nearing retirement who have different strategies, financial planning needs and specializations.
Client segmentation gives RIAs the freedom to define investment strategy, adviser involvement, planning depth, pricing and more for every client — and excel at serving them accordingly.
Over time, this strategy can deliver positive outcomes, high-quality engagement and a competitive advantage.
With the right team and technology in place to mitigate friction, RIAs can unlock the full value of client segmentation and serve the next generation of clients while delivering sustainable growth for years to come.
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