How Advisors Can Make Segmentation Work for Them

One way for registered investment advisors (RIAs) to facilitate durable growth is to hone their focus on specific client groups.

Many advisors think they’re already doing this because they set minimums on the amount of client assets they’ll take on $250,000, $500,000, $1 million and so on. That makes sense when considering the fee-based model many RIA practices run on and there’s certainly something to be said for catering to high net worth and ultra-high net worth clients. After all, a substantial stable of those type of clients can propel top line growth while making for a more efficient, potentially more profitable practice.

Indeed, focusing on specific asset levels is one interpretation of segmentation, but as the advisory industry and its clients grow more sophisticated, advisors can take segmentation to the next level by focusing on certain demographic groups and the like.

For example, it’s not uncommon for advisors in Silicon Valley to focus on clients that work in venture capital or technology. Likewise, some advisors focus on medical professionals, teachers or other specific professions and that’s a strategy that can pay dividends in terms of growth.

Seizing Upon Segmentation Opportunity

In a recent note, WisdomTree’s Ryan Krystopowicz and Scott Welch compare advisor segmentation and finding niches to watch collecting. That’s a more relevant comparison than readily meets the eye.

They note that watch collectors are likely affluent with high levels of disposable income and like to be surrounded by others that appreciate and engage in the same hobby.

“So, imagine if you became the world’s expert on collectable watches and the typical financial objectives of the people who collect them. You have a built-in market niche that is narrow enough for you to dominate and deep enough to build a thriving practice around,” note Krystopowicz and Welch.

Point is segmentation and niche focuses may appear narrow, but with the right execution and strategy, advisors can build thriving practices that cater to highly segmented groups of the broader population. As the WisdomTree duo note, they’ve encountered RIAs that are thriving by focusing on medical professionals, real estate developers, attorneys and high net worth families, among other specific groups.

A recent article in the Investments & Wealth Monitor examined three advisors – one focusing on professional athletes, another various business owners and another catering to, believe it or not, ex-wives of wealthy financial services executives in the New York area. Along those lines, there are even advisors catering to those in some, shall we say, provocative professions.

“One advisor runs the wealth management arm of a successful sports agency, and all his clients are professional athletes,” add the WisdomTree duo. “He outsources the investment management function to a third-party so he can focus on everything else his clients need—cash management, insurance, bill paying, tax preparation, estate planning and so forth. In a highly competitive marketplace, his new clients seek him out because of the word-of-mouth references he gets from existing clients, who are among the most well-known athletes in the world.”

Segmentation Pays Off

Advisors new to the business are often programmed to believe that they need to take business wherever they can find it. However, as the practice expands, it makes sense for many advisors to find a niche because that enhance efficiencies and, potentially, profitability.

“The point of the story is to find your niche, develop the appropriate expertise for that niche and then get busy,” concludes WisdomTree.

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