Trying to work with too many different types of clients is a common problem facing many advisors today. Your potential for personal and professional success is unlimited, but your resources are not. You have a limited amount of time each day, a limited number of support staff and a limited number of client segments that you can effectively serve. If you can't easily arrange your client base into two or three clearly defined groups, there's a good chance that you and your team may be spreading yourselves too thin. With a more-focused approach to segmentation, you can increase client satisfaction, as well as your profitability. Satisfied clients lead to higher client-retention rates and naturally generate more introductions to the types of new clients in which you're most interested.

Looking Beyond the ABCs

Many advisors tend to segment their books of business by asset size, creating an A book, B book and C book. While this may be a good place to start, asset size is only one variable of many that you need to consider. For example, let's say your A book consists of clients with account balances of $1 million and up. Should these clients get the best service you have to offer? Absolutely. Do these clients all have the same needs and expectations for service? Probably not. Your A group could contain a highly diverse group of clients, such as a widow, a physician, a small-business owner and a corporate executive—each with specific needs and concerns.

The services that you offer each segment could be profoundly different. A CEO may have concentrated stock positions; a doctor may need help with business issues; a widow may be interested in preserving capital that's generating monthly income; and a small-business owner may be planning for retirement and creating a business-succession plan. They have very different needs-and lumping them together as a segment simply because they have the same account sizes won't help you effectively serve those divergent expectations.

If you're trying to serve too many different target markets, you may find that you don't have a clearly defined value proposition. In addition, having too many different types of client-service models quickly becomes problematic. Some types of clients may require a much higher level of service than others, creating operational inefficiencies. If you're working with too many different types of clients, chances are good that many clients will end up being underserved-and possibly start looking for advisory services elsewhere.

Taking a More Focused Approach

Many advisors and advisory teams today are finding that having two or three niches in terms of client specialization is more than enough. They can build profitable businesses, market themselves as experts within a given area and become the "go-to" advisory team within their geographic region for their target markets. In addition, they can deploy their team resources more effectively by serving a smaller number of client segments, while offering more comprehensive services for each segment they serve. The goal is doing fewer things, but at a higher level.

This focused approach to client segmentation may require changes in your practice. For example, you may need to consider partnering with another advisor who specializes in a niche you want to cover, or bringing on a junior partner who's willing to learn the ropes in an area that's currently underrepresented on your team. In addition, you may need to reassign roles and responsibilities of other team members based on the needs of the client segments you decide to serve. And finally, it's critical to fine-tune your value proposition and take a highly deliberate approach to new client acquisition, accepting only those clients who fit your client-segmentation model.

The benefits of a successful client-segmentation program are twofold. The first is an improvement in client satisfaction, which leads to higher retention rates and the potential for existing clients to bring new assets to your team. The second benefit is that higher client satisfaction leads to more introductions from clients and their other advisors. To fulfill your role as a wealth advisor, you must partner with your clients' other advisors—not to get referrals, but to provide your clients with comprehensive guidance and advice. As a strategic byproduct, you'll naturally enjoy more introductions and build the business you envision for the future.

Gaining a 360-Degree View

Understanding the needs of each client segment requires taking a 360-degree view of your customers' lives. How well do you really know what clients want from you in terms of service? Many advisors don't know because they haven't asked the question. They may perform quarterly account reviews, but haven't actually reached out to discover what their clients' most important needs are. One of the hardest things for advisors to do is distinguish between the known and unknown needs that clients may have.