Client segmentation is not always a matter of simply dividing your book according to client asset level. Some financial advisors segment their clients according to demographic criteria — considering such factors as age, gender, life-cycle stage, lifestyle and ethnicity, among other variables, when developing their marketing strategies. This approach allows you to tailor communications to groups of clients who have more in common than just the size of their accounts.

“Demographic segmentation gives advisors the direction to focus on a preferred client segment,” says George Hartman, CEO of Market Logics Inc. in Toronto, “and it helps them to allocate and manage their resources better.”

Demographic segmentation is not always a straightforward strategy. The profiles, life-cycle stages and lifestyles of your client base may change over time, and referrals may bring in clients from segments that are not your primary target.

Further, many advisors do not define their target demographic segments at the outset. “The preferred segment is often defined after the advisor has established a client base,” Hartman says, “most likely comprising clients that cross different demographic segments.”

Many advisors find their areas of specialization by accident, according to Dan Richards, CEO of Clientinsights in Toronto. “Most advisors end up with a preponderance of clients in a specific demographic segment,” he says, “but it is usually not a conscious decision. [Advisors] tend to market to people like themselves with whom they have some commonality.”

Pure demographic segmentation tends to shift in favour of the largest portion of an advisor’s client base.

Changing gears

Advisors who are already focused on a particular demographic segment may find themselves needing to change gears to serve clients in other segments who arrive through referrals. Rod Chin, a financial advisor with Edward Jones in Toronto who focuses on retirees aged 60 to 80, often receives referrals to his clients’ children, who range from under 40 to 50 years old. Similarly, the children can become clients through the estate-planning process and through the wealth transfer when elderly clients die.

Demographic targeting works best when there is a “unique set of needs,” Richards says. Needs can be identified by looking at the characteristics of each segment.

For example, you may choose to segment your clients by age, gender or ethnicity. Or you may choose to use a life-stages approach, creating segments such as single people, newly married couples, couples with children, divorcees and pre- or post-retirement clients. Or you may segment your clients based on income level, lifestyle or some other unique variable.

Marketing to these groups effectively requires an understanding of the particular interests of each segment, Richards says. For instance, couples in their 30s are usually still consuming and are not necessarily saving; those in their 40s are beginning to think about saving and investing, but don’t become serious about saving until their 50s. These insights can help you develop marketing materials that address the specific needs and interests of each client segment.

“In order to be successful,” Richards says, “you must understand the needs of each group, decide what you want to do and be single-minded about your strategy.”

So, how do you begin your demographic segmentation strategy? Hartman suggests reviewing your client base to determine which is your preferred segment. Which clients do you enjoy working with? Which clients are most in line with your investment philosophy, easy to get along with and receptive to your suggestions?

Once you have identified these clients, look for characteristics they share, such as age, profession or life-cycle stage. For example, your preferred clients may be retired business owners, young IT professionals or middle-aged grocers. Then, says Hartman, “Recognize the value that segment has to your practice.”

New value proposition

You have to be willing to reorient your practice toward your preferred demographic segment and to focus on attracting new clients that fit that segment, Richards says: “You must have a new value proposition that does not limit opportunities. Be very targeted and specific.”

But this does not necessarily mean you must terminate clients who do not fit your segmentation criteria. Rather, it should allow you to focus on the demographic segment that best meets your business objectives.

Richards and Hartman both recommend working to strengthen relationships with existing clients who are not in your target segment. “If you serve them well,” Richards says, “they will stay.” IE