Segment your clients based on demographics

Demographic segmentation can be a useful strategy for growing your practice.

You can choose to focus on client segments using a range of variables, such as life stage, lifestyle, income level, profession or other characteristics.

“Demographic segmentation allows you to focus on preferred client segments and helps you to allocate and manage your resources better,” says George Hartman, CEO of Market Logics Inc. in Toronto.

Normally, pure demographic segmentation tends to shift in favor of the largest portion of a financial advisor’s client base, Hartman says. That is because advisors unconsciously end up with the majority of their clients in a specific demographic segment — because they have some affinity with members of that group.

For example, you might have begun by serving clients who work in a particular profession — say, teachers — who, over time, became the majority of your clients, primarily through referrals. So, if you have developed expertise in working with teachers, it might be prudent to focus your energy on developing your growth strategy around teachers.

Below are some ideas to help you set up a demographic segmentation strategy:

> Establish your “preferred” client profile
Most advisors do not define their target demographic segment (or segments) when they start their practice.

“The preferred segment is often defined after the advisor has established a client base,” Hartman says. “And it most likely comprises clients that cross different demographic segments.”

Hartman advises making a strategic decision on the demographic segment you wish to focus on, based on your preferred client profile. Review your client base to identify, for example: clients you enjoy working with; those whose needs are aligned with your investment philosophy; those who are agreeable and are receptive to your suggestions.

Once you have identified these clients, look for characteristics they share, such as age, profession or life stage. For example, many of your preferred clients may be retired business owners, young IT professionals or divorced parents. You should then assess the value that the preferred segments bring to your practice.

> Determine the needs of your preferred segment
Demographic segmentation works best when clients have a defined set of needs that is unique to that segment, Hartman says.

The products and services you offer must be designed to meet the specific needs of your preferred clients.

Now you can reorient your practice toward serving your preferred segment and focus on attracting new clients with similar characteristics. This shift also would allow you to tailor your communications to clients who have common needs, thereby simplifying your message.

See: Segmentation: Defining service levels

> Expect inconsistencies
Note that demographic segmentation is not always a straightforward strategy. The profiles, life stages and lifestyles of your clients will change over time. Referrals may also bring in clients from segments that are not your primary target. And once you have identified preferred clients from your client base, you will find that you still have clients who do not meet your preferred client criteria.

But there is no need to terminate clients who do not fit your demographic segmentation criteria. Rather, Hartman says, you should focus your resources on the demographic segments that meet your growth objectives while continuing to serve those clients who don’t. That is a strategic choice you will have to make.

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