Customer segmentation, in simple terms, is dividing your customers into smaller groups based on shared characteristics. Doing so allows you to deliver more personalized messages and offers, identify high-value customers and serve them in a manner that increases customer satisfaction and loyalty.

Client data is like a natural resource that you can mine for business value. Like the CEO who challenged his leaders to find “veins of gold” within their departments that would deliver added business value, you have an opportunity to go deeper with your practice.

From an advisor perspective, more insight on customers improves leads management, conversion rates and presents opportunities to earn greater wallet share.

Many advisors will segment their clients based on assets and revenue — that’s just a first step. Present levels of investable assets hardly qualifies as an insight.

Two ways to segment customers

In market research, there are two popular approaches to customer segmentation.

One way is lifestyle segmentation, based on the demographic of the customer or household within a geographic area — where your customers live. Lifestyle segmentation is typically used to identify location, build profiles of your clients and target marketing campaigns. It can be easy to implement and is only dependent on accessible third-party data like the Canadian census. It also offers scalability across customer groups, marketing channels and platforms within a geographic centre.

The criticism of lifestyle segmentation is that the information can grow dated, it is limited to fixed segments and it cannot be personalized. So, it has limited application in building client journeys or targeting offers. In fact, sending an offer that’s unsuitable to a client or prospective client can do real harm to your reputation.

The second approach is behavioural segmentation, which analyzes your customers’ behaviour and actions providing deeper insight into their motivations and a better understanding of how they make decisions. Third-party data can be included in the analysis, but the group is primarily identified based on the actions your customers take, including purchase habits, loyalty and benefits sought. Each segment is defined by the unique personality profile of your customers in how they act and make decisions.

The proponents of behavioural segmentation point to the individualization and personalization that can be used to target marketing messages and offers to those with buying intent. This is particularly valuable when you are working directly with customers. The depth of information makes it very useful for building customer journey maps and getting a better understanding of the people you serve.

It offers deeper insight into customers’ motivations and decision-making. And because it focuses your attention on people most likely to respond positively, it can optimize marketing spend and business development efforts.

It is more flexible in that you can define custom behaviour-based segments specific to the financial advice business. And it can be updated in real-time based on the customers’ life stage.

A criticism of behavioural segmentation is that it takes more time and resources because it mines your data.  But this is the cost for alignment of behaviour to financial need. Segments also change over time, so you need to regularly monitor and update them.

Which is better?

Behavioural segmentation is often considered better because it focuses on how people behave rather than where they live. That said, when deciding whether to use lifestyle segmentation or behavioural segmentation, consider what you are trying to accomplish. If it is to be used in a broader marketing context, lifestyle segmentation can help. If you are looking to gain a better understanding of how your customers make decisions to create a personalized experience and target offers to those with buying intent, behavioural segmentation will deliver results.

From an advisor perspective, behavioural segmentation has the greatest potential because of its emphasis on personalization.

What is interesting is that the strength of each approach addresses the perceived weaknesses of the other. Given their complementary nature, both models can be used together. It will likely balance your need for scale and increase precision to ensure your business objectives are achieved.

The largest wealth transfer in history will continue to roll out over the next few years, but it may not be as big as expected. Advisors who don’t insert themselves into client decision-making risk missing out. Those are the key findings of a study conducted by PMG Intelligence.

We found multiple reasons why the impact of wealth transfers is being diluted. They include transfer amounts (most will be less than $100,000), a lack of preparedness and confidence among clients in how their wealth will be transferred and a failure by some advisors to engage clients and their adult children in detailed conversations about estate planning.

Transfer amounts are disappointing

Our study suggests that 66% of wealth transfers will be less than $100,000. Only 5% of transfers will be greater than $500,000.

Compare that to the fact that 45% of pre-retirees believe they will inherit more than $100,000, and 17% who believe they will inherit more than $500,000.

	Value of inheritances expected	Value of inheritances received
$500,000+	17%	5%
$300,000–<$500,000	7%	4%
$100,000–<$300,000	21%	26%
$50,000–<$100,000	22%	22%
$25,000–<$50,000	11%	13%
<$25,000	23%	30%

This is problematic for two reasons.

First, because the great wealth transfer has been so widely discussed, Canadians may be making spending decisions based on false assumptions about their financial future. Inheritance expectations are often unrealistic. This will come as a big disappointment to the one in four pre-retirees counting on a will to support their retirement income.

Second, there is some serious mental accounting underway — a cognitive bias in which people view inheritances as free money that they can spend in the short term, without understanding the impact those funds could have in the long term.

Canadians aren’t ready

Only 55% of Canadians feel prepared to transfer their wealth, according to our research. Two-thirds (66%) of those 65 and older feel prepared. About half (52%) under 35 say the same. And 48% between the ages of 35 and 55 feel prepared.

Household wealth has an effect too. Three-quarters (77%) of people with $500,000 or more in assets feel prepared, compared to 64% of those with $100,000–$500,000, 58% of those with $50,000–$100,000 and 41% of those with less than $50,000 in assets.

What makes the difference? Working with an advisor.

Two-thirds (66%) of Canadians who work with an advisor feel prepared, while just 43% of Canadians who don’t say the same.

Calling all advisors

Fewer than half (40%) of retirees told us that they’ve discussed their estate plan with a financial advisor. Another 14% said they plan to do so. About half (52%) have talked with their kids about their estate plan, and 20% are planning to. The results are predictably lower for pre-retirees.

Advisors need to insert themselves into these discussions.

They need to ask for introductions to client’s adult children too. Just 21% of retirees have introduced beneficiaries to their advisors, and only another 6% plan to.

The numbers are better among retirees with more than $500,000 in assets — 39% have connected their advisor and beneficiaries, and 11% plan to. Those results are still too low though.

By getting directly involved and influencing wealth transfers, you’ll be a help to clients and their beneficiaries. You can make sure that even small inheritances aren’t squandered and that client wishes are fulfilled.

Effective estate planning demands a hands-on, concerted effort that includes advisors, their clients and beneficiaries. Without action, the great wealth transfer we keep talking about may be lost.