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Segment Targeting for a Wealth Advisory Identity

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American Banker
Wealth management advisors already were losing distinctiveness before 2008’s Wall Street meltdown; most players offered a near-limitless array of investment products at increasingly similar fee structures.

Even investment performance had been converging with the industrywide focus on diversified portfolios.

Now advisors are sharing a much more unfortunate trait۝plunging returns in a crisis-torn market. As a last resort, each is trying to outdo the other on service excellence for clients of all types and sizes. But this, too, is sinking into a look-alike exercise.

Indeed, the more providers beat the drum of “excellence for all,” the more it appears that most front-line advisors are simply unable to articulate a distinctive strength for their firms. As underscored by a Novantas audit of the on-site client experience at the nation’s top wealth management firms, advisors routinely fall back on grandiose service promises and client relationship chemistry to make their case.

To combat the insidious trend of homogenization, it is time for progressive firms to begin reorganizing around prime customer segments. Only by establishing a center of gravity with target customers and priority markets can providers develop the distinctive strengths needed to stand out in a brutal market.

The stakes are high. Even after recent market plunges, the U.S. wealth management industry is handling more than $44 trillion of investable assets.

In the next two years, we believe that up to one-quarter of these assets۝more than $10 trillion۝will come up for grabs as shell-shocked investors reconsider their options.

Obviously, superiority in client acquisition will make all the difference in forthcoming wealth advisory competition. But many traditional selling points have faded.

Access to unique investment products, for example, is a yawn now that most firms have moved to “open architecture,” which gives clients access to the full spectrum of investment vehicles, from the most basic to the most sophisticated.

Standout near-term performance, in addition to being imperiled by current market conditions, has become increasingly difficult to achieve as the investment management industry has adopted modern portfolio theory emphasizing the long-term suitability of diversified portfolios.

Pricing latitude has diminished with the advent of online discount brokers, and investors also have been sensitized to commission structures by publicized episodes of excessive broker trading in the pursuit of fee income.

Even firms that are consciously at work on segment-based customer responsiveness have a long way to go to build competitive distinctiveness.

Consider, for example, a firm that decides to target clients with $1 million to $3 million of assets, a bandwidth quite high in household count and collective holdings. Though this segment has some common service denominators, such as areas of residency and overall distribution configuration, tremendous differences also exist.

Widows who are new to estate management, for example, probably will have needs that sharply differ from those of newly retired professionals who have been managing their office and household finances for years. Though such differences seem obvious, few firms actually vary their capabilities in accordance with them. And potential segment variations are numerous.

As progressive wealth advisory firms get started on the path of segment-based responsiveness, they are finding it helpful to establish areas of primary emphasis, both in terms of priority customer groups and matching distinctive competencies.

In turn, a segment focus offers crucial guidance for refining a chain of related factors, including geographic/demographic targeting; marketing and positioning; product and service bundling; advisor hiring, training, and tools; investment vehicles and access to specialists; and support staff infrastructure.

Though wealth advisory firms have always prided themselves on their methodical approaches to investing, the same level of attentiveness and precision is now needed to discern and serve major customer segments. Careful preparation is essential to take advantage of segment-based growth opportunities.

Without a segment focus, undifferentiated wealth advisers will be stuck in the very deep rut of trying to outbid each other for the most talented relationship managers and outdo each other in reducing back-office expenses. Such measures, though understandable, forfeit the high ground of winning market share through distinctive responsiveness to targeted customers.

Mr. Cutler is a managing director in the New York office of Novantas LLC, a management consultancy. Originally published in American Banker.

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