FWR talks to Fast Track Advisors, a consultancy which specializes in the integration of technology and strategy for firms that operate in the wealth management space.

The idea that client segmentation strategies can help determine which types of client promise the most potential to grow a business over time is not new.

But the issue has gained ground more recently as firms intensify their focus on finding innovative ways of optimizing internal resource allocation, as well as facilitating a more efficient commercial distribution of wealth management products and services, and, ultimately, boosting client satisfaction (source: SEI and Scorpio Partnership).

Indeed, last month finding the “right type of clients” emerged as a growth challenge for many financial advisors surveyed by the firm, suggesting that there is still a significant opportunity to be had from “proper” client segmentation, it said.

This is one of several key areas of focus at Bob Ellis' New York-based firm, Fast Track Advisors, a consultancy which specializes in the integration of technology and strategy to achieve superior profitability and operational excellence for firms that operate in the wealth management space.

With over 20 years of experience working with trust companies, banks, brokerages and asset management organizations, Ellis said he often finds a discrepancy in the type of clients firms say they want and the clients they actually have.

He views wealth management in three dimensions – client segmentation, products and delivery channels – and analyzes their points of intersection to ascertain whether a firm's value proposition is a) in line with its target audience and/or current client base, and therefore is b) profitable.

While there are a staggering 648 possible client segments in his initial model, Fast Track can drill down further if the firm in question has the right data (and part of the wider issue here is that they seldom do.)

“But you can combine them based on how individual firms have populated those segments and then from that start designing strategies for each,” Ellis said.

He categorizes client segments into four “mega” buckets: mass market investors (those with up to $250,000 in net worth); the affluent (up to $2 million); high net worth (up to $10 million); and ultra high net worth (over $10 million.)

“This is different to most firms, but I find it more useful because this is where most products and delivery channel preferences change,” Ellis said.

The issue of client segmentation is important because if all clients are treated equally, “you will over-serve unprofitable clients and under-serve your most valuable ones” - this not only puts them at risk but is not conducive to profitability, he explained.

Selling complex products such as structured notes to mass affluent investors, for example, may actually intimidate them, and, in the end, their needs will not be met.

The aim of Fast Track is to help firms operating in the wealth management space ascertain who they want to be for what kind of client, and then recommends what they need to do or change to get there.

This requires looking closely at technology, marketing and value proposition – among other things such as recruitment strategies – because these factors combined influence the type of message firms are sending out to attract the clients they have already.

On the technology front, Ellis said he is a big advocate of outsourcing for scale and efficiency, noting that, for many firms, this isn't part of their value proposition because “clients don't care how your back-office works, so long as they get what they need.”

Meanwhile, he has seen instances where, for example, an advisor is tempted to open a relatively small client account in hope that it will grow into something much larger, when perhaps they are not a right fit for the firm.

“They are optimistic,” he said, “but the truth is that if someone has $50,000 and they're 60 years old, the likelihood of them becoming a multi-million-dollar account is probably fairly small.”