Does Market Segmentation Work in Wealth Management?

Consumer goods companies have long practiced what is termed ‘market segmentation’ – grouping customers according to their perceived needs as well as other factors such as age, income and geographic location. This enables companies to tailor their offering so clients get the product that best suits them, while the organisation benefits through more efficient allocation of resources.  

As digital technology, data science and cloud computing make market segmentation ever more detailed and precise, it is also being embraced by wealth management professionals. Like consumer-goods marketers, wealth management firms have found that a well-designed and effectively executed segmentation strategy can help to improve the customer experience, increase loyalty and enable advisors to better understand their clients.  

Wealth professionals have also embraced the reality that segmentation is not a one-off activity and that life circumstances will sometimes mean that a client may move swiftly from one market segment to another, thereby requiring a different suite of wealth management services that must be recognised and delivered promptly.  

Life events such as a big promotion, an inheritance, selling a business, marriage, divorce, having children, or retiring may all move a customer into a different market segment almost overnight. 

And where once wealth management clients tended to be segmented only by factors such as income, household assets and risk profile, now the sky is almost the limit when it comes to how thinly a firm can slice its customer segments using technology, and how quickly it can respond with bespoke solutions. 

Your financial future is not being controlled by a robo-advisor 

Does this mean that technology and artificial intelligence now rules the roost and R2-D2 from Star Wars has effectively become your financial advisor?  

The short answer is a resounding ‘no’, says Anthony Palmer, Group Commercial Director at Carrick Wealth. “Automated technology advisors haven’t worked around the world. Most people don’t have enough confidence in a computer to entrust it with their wealth and their future. As a society we are not there yet and there are many other considerations which cannot be automated such as tax advice.” 

But Carrick Wealth does recognise that tech-based market segmentation – frequently supplemented by information from human advisors who know their clients and their needs well – can help to improve the customer experience. Customers with relatively straightforward wealth management requirements, for example, benefit from well-priced investment solutions that are immediately available and tailored to meet the needs of people just like them. These are typically available online and via mobile technology. 

Those with more complex wealth planning requirements still have ongoing access to the financial expertise of Private Wealth Managers, who will supplement their knowhow by using technology to draw on the latest in-depth data relevant to that market segment. All clients, whether with relatively straightforward or highly complex bespoke needs, benefit from segmentation because they receive product offers that are timely and highly pertinent to them. Segmentation makes ‘one-size-fits-all’ wealth management products and services a thing of the past and, in some instances, product/service offerings will be based on a client’s hobbies, interests and lifestyle choices – which a good segmentation model will know about. 

A blend of tech and the human touch 

Carrick Wealth’s approach, therefore, is to blend technology with still-irreplaceable human feel and insight, as and where necessary. “It is a light-touch attitude to technology, as opposed to a no-touch process,” Palmer explains. “Ultimately, there is still a well-qualified person available to provide advice and assistance; to explain things when necessary.” 

According to Palmer, Carrick Wealth has an integrated strategy when it comes to developing each client’s financial plan. This considers factors such as ownership structure and how best to hold assets, onshore vs offshore investment considerations, and a considered view of future local and international currency performance. 

“That is specialist financial planning and is something that automated technology cannot do. Clients also want to be able to talk things through with a person and to ask questions such as what is likely to happen to the rand. An automaton isn’t suitable for that,” he emphasises.