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Advisors know that the business of financial advice and wealth management is already segment. Some clients are older while others are young. Others are highly wealthy while others are trying to get there.
Point is astute advisors are already aware of the fact that, for the most part, clients aren’t alike and as such, one-size-fits-all approaches are largely ineffective. So it’s likely smart advisors are already applying some level of segmentation, whether they realize it or not.
They should realize it because segmenting clients is like anything else: there’s a right and a wrong day of doing it and that’s crucial at a time when today’s clients are increasingly sophisticated. For advisors that want to improve their segmentation abilities, demographics are a good place to start. Fortunately, that endeavor isn’t centered on clients’ race or wealth.
Rather, the demographic segmentation outlined here is more about specific generations, women and investors that covet both advisors and doing some things on their own.
Four Segments to Focus On
As noted in State Street Global Advisors’ (SSGA) 2024 Influential Investor Segment Study, the segments on which advisors should direct energy to are, in no particular order, Gen X, millennials, hybrid investors and women.
When it comes to segmentation with Gen X clients, the reasons are clear and arguably boil down to the following two points. Gen X will be the first recipients of capital in the great wealth transfer and this generation is dire need of catching up when it comes to retirement savings. Interestingly, SSGA data indicate Gen X use of advisors is relatively low and that needs to change.
“What’s keeping them from engaging with an advisor? It comes down to fees and the overall experience. Despite their apparent need for professional investment guidance, the top reason cited for not working with an advisor is the perceived lack of value for the fees (45%),” notes SSGA. “For Gen X investors who had previously worked with an advisor, it came down to increased costs (37%) and unfulfilled promises (20%) as the primary reasons for leaving, prompting them to turn to online services and investment websites for market and investment insight.”
Regarding millennials, they’re an important segment for advisors because clients in those demographic want to be, well, clients, but they also want to be self-directed investors. In other words, many millennials are hybrid investors. That can actually work in advisors’ favor.
“As millennials accumulate wealth and navigate increasingly complex financial needs, they become prime candidates for formal advisory relationships,” observes SSGA. “Despite their historically high rates of direct provider platform use, 67% of advised millennials collaborate with their advisor on investment decisions. Additionally, advised millennials, more so than advised Gen X and Boomer segments, are more inclined to involve their advisor in day-to-day finances, including cash flow management, insurance, private banking, and debt management.”
Understanding Female Clients
Smart advisors are already wise to tailoring strategies specific to women. One interesting thing about women is that many, as noted in the SSGA survey, consider themselves to be hybrid investors. They want professional advice and like working with advisors, but as they gain more financial confidence and education, they will want to try some things on their own.
Advisors should note that doesn’t mean empowerment prompts women to fire advisors. That’s not accurate. However, with women controlling roughly a third of global assets and with that figure poised to grow in the years ahead, advisors need to understand the motivations of this group when it comes to their decisions to hire an advisor.
“When choosing an advisor, women’s preferences were somewhat similar to men’s. The overwhelming majority (69% vs. 63%) ranked an understanding of their financial goals and comfort with the advisor/client relationship (66% vs 62%) as the top two factors when selecting a financial professional,” concludes SSGA.