Why segment clients ? Why is segmentation a critical component of understanding wealth management? What are typical segmentation criteria ?
Client segmentation allows wealth managers to tailor services to specific client needs, preferences, and behaviors, enhancing the effectiveness of financial strategies and improving client satisfaction. It’s critical for understanding and addressing diverse client requirements and optimising resource allocation.
What are typical segmentation criteria ?
- Net Worth/Wealth Level: Categorizes clients based on their total assets.
- Income Level: Differentiates clients by their income range.
- Investment Preferences: Classifies clients according to their investment style and risk tolerance.
- Life Stage: Groups clients by life events, such as retirement or wealth accumulation phases.
- Geographic Location: Segments based on clients’ geographic regions.
- Family Structure: Considers clients’ family needs, such as estate planning or education funding.
- Industry/Occupation: Groups clients based on their professional background or business interests.
Others include: age, behaviour, source of funds, appetite for delegation, personal delegation, occupation or nature of business.
What are some progression types of private wealth relationships?
Categorise the following people into these groups.
- Entrepreneur
- Active inherited wealth
- Passive heir
- Professional
- Sportsperson
- Retiree
- Business vendor
- Liquid versus illiquid
- Landowner
- Inpatriate vs expatriot
- Delegator: A client who relies on the wealth manager to make decisions and manage their portfolio with minimal input or oversight. Passive heir, Retiree
- Participator: A client who is actively involved in the decision-making process, providing input and collaborating with the wealth manager. Entrepreneur, Active inherited wealth, Landowner
- Enthusiast: A client who is highly engaged and interested in all aspects of their wealth management, often seeking detailed information and frequent updates. Sportsperson
- Selector: A client who makes key decisions and chooses specific investments or strategies, while the wealth manager provides recommendations and advice. Professional, Active inherited wealth, Landowner
- Comparator: A client who evaluates and compares different options and recommendations from the wealth manager, often seeking validation and multiple perspectives before making decisions. Business vendor, Liquid versus illiquid, Inpatriate vs expatriate
Underlying business purpose and value proposition for understanding client segmentation. What are some issues to consider?
- Matching - of client to advisory resource (consider the benefits and issues in both directions - not just from the perspective of a wealth manager or solely from a client’s perspective)
- Profitability - this follows directly from matching. Will revenue from a client be greater than the costs of service, can economic profit be made?
- Customer satisfaction, retention and churn - will service delivery result in customer
satisfaction and longer-term client retention?
Client segmentation drives allocation of resource and service level, and
is critical to the fundamental economics of the global wealth management industry
Does segmentation actually happen in practice ?
“Most wealth managers already segment their clients quantitatively, into small accounts, the affluent, HNWIs, and UHNWIs. Yet relatively few wealth managers use qualitative segmentations, such as source of wealth, client life-cycle, investment style, or degree of interaction”
What is ‘client coverage’ and how does
segmentation impact this?
Client Coverage refers to the breadth and depth of services provided to clients by a wealth management firm. It encompasses how effectively the firm meets the diverse needs of its clients through personalized attention, tailored strategies, comprehensive financial solutions, resource allocation, efficient service deliver and enhanced relationship mangement.
What is CMB? What is a joint stock bank and why is this relevant? Has CMB ever engaged with foreign strategic investors? What is the history here?
CMB (China Merchants Bank) is a major Chinese commercial bank offering a range of financial services. A joint stock bank is a type of bank owned by shareholders who hold its stock, which is relevant as it affects governance and capital structure. Yes, CMB has engaged with foreign strategic investors, including a significant investment from the Singaporean sovereign wealth fund GIC in the past, reflecting its openness to international partnerships.
Branding - should CMB ‘spin out’ or separate its private bank? How does this fit with client segmentation? How has the private banking evolution differed in Taiwan? Is this relevant for China?
Spinning out or separating the private bank could allow CMB to better target and cater to high-net-worth clients through a distinct brand, aligning more closely with client segmentation and enhancing service specialisation.
How do foreign banks fit in here as potential competitors? Does this link in with foreign strategic investors in regional private banks?
Foreign banks can be significant competitors due to their global expertise and established private banking models, and their involvement as strategic investors can influence regional private banks’ competitive dynamics.
In a retail-driven private banking model - is there moral hazard for the traditional retail operation to hand over their customers to the private bank? How did CMB define their family office solution versus the private bank?
Yes, there could be a moral hazard if the retail operation prioritizes short-term gains over long-term client relationships, potentially leading to conflicts of interest in transferring clients to private banking services. CMB’s family office solutions are tailored to managing the complex needs of high-net-worth families, focusing on personalized wealth management and estate planning, whereas their private banking services offer a broader range of financial products and services.
Is the ‘family office’ concept different in China compared to Europe or the US? What drives this distinction? Do China’s capital controls impact this? What ultimately was the history of CMB’s initial expansion into private banking?
Yes, the family office concept in China often emphasizes managing domestic wealth and navigating capital controls, while in Europe and the US, it may focus more on global asset diversification and tax planning. CMB’s initial expansion into private banking involved developing a dedicated private banking division to cater to high-net-worth clients, driven by China’s growing wealth and demand for personalized financial services.
How did CMB help to define the trusts space in China? What are the challenges ahead for CMB?
CMB played a pioneering role in developing trust services in China by introducing innovative trust structures and solutions, contributing to the growth and sophistication of the trust industry. CMB faces challenges including adapting to evolving regulatory environments, managing increasing competition from both domestic and foreign banks, and addressing the complex needs of a growing and diverse client base.
Culturally - are trusts used for different or additional objectives in China compared to Europe or the United States? How does the ‘three circle’ model apply differently in China to the rest of the world?
In China, trusts are often used for wealth preservation and succession planning due to cultural and regulatory factors, while in Europe and the US, they may also focus on tax optimization and charitable giving. The ‘three circle’ model in China, which considers family, business, and ownership dimensions, may differ due to unique cultural and regulatory contexts affecting family and business dynamics compared to the rest of the world.
What are the common types of relationships with a private wealth manager from the perspective of the client?
- Delegator:
A client who prefers to hand over full control to their wealth manager. They trust the advisor’s expertise and typically do not get involved in the decision-making process. This client type values delegation, often due to a lack of time or interest in financial management.- Participator:
This client type wants to be actively involved in the management of their wealth. They engage with the wealth manager and take part in decision-making. They seek advice but also want to understand and contribute to the strategy. - Enthusiast:
Enthusiasts are highly interested and often knowledgeable about finance. They view wealth management as a collaborative effort and enjoy discussing complex strategies. They tend to research and suggest investment ideas, making them ideal clients for advisors who enjoy in-depth discussions. - Selector:
A selector prefers to make their own decisions but seeks specific advice from wealth managers on areas they may not fully understand. They usually come to a wealth manager for expert insights, recommendations, or execution support for particular aspects of their portfolio. - Comparator:
These clients compare various options before making any decision. They are cost-sensitive, detail-oriented, and might work with multiple advisors to compare insights. They tend to take a long-term view and look for performance benchmarks and cost efficiency in wealth management services.
- Participator:
What are the common types of relationships with a private wealth manager from the perspective of the client?
- Delegator:
A client who prefers to hand over full control to their wealth manager. They trust the advisor’s expertise and typically do not get involved in the decision-making process. This client type values delegation, often due to a lack of time or interest in financial management.- Participator:
This client type wants to be actively involved in the management of their wealth. They engage with the wealth manager and take part in decision-making. They seek advice but also want to understand and contribute to the strategy. - Enthusiast:
Enthusiasts are highly interested and often knowledgeable about finance. They view wealth management as a collaborative effort and enjoy discussing complex strategies. They tend to research and suggest investment ideas, making them ideal clients for advisors who enjoy in-depth discussions. - Selector:
A selector prefers to make their own decisions but seeks specific advice from wealth managers on areas they may not fully understand. They usually come to a wealth manager for expert insights, recommendations, or execution support for particular aspects of their portfolio. - Comparator:
These clients compare various options before making any decision. They are cost-sensitive, detail-oriented, and might work with multiple advisors to compare insights. They tend to take a long-term view and look for performance benchmarks and cost efficiency in wealth management services.
- Participator:
According to Forbes name seven types of attitude shifts of wealth management clients.
- Clients want more control and involvement to feel like they are part of the process from the start to end from the planning advice delivery investing and monitoring stages wealth manages can address this need by moving parts of the client experience online so they can be more involved.
- Clients want to be knowledgeable. They want to be able to research and learn about how the wealth is being managed on their own schedule, and again understanding of strategies in context of their situation and ask intelligent questions.
- Clients were to collaborate with a professional so they feel more in control and involved. Less of an advisor centric approach.
- Clients have become more financial services savvy. They now have a better understanding of their portfolio management theory and how diversified portfolio advice is created and delivered.
- Clients want to pay for value. Good personalised advice planning portfolio construction and monitoring the portfolio can be worth a lot. However clients are concerned about how much the total fees they pay on assets under management are allocated to the relationship with a professional and delivery is essentially a prepackaged solution.
- Clients are digitally proficient and expect the same music experience across all their devices with the same wealth management provider. They desire to connect with advisors the same way they connect with family friends and other business relationships..
- Client want to validate and verify their advice they’re being given in comparison to performance benchmarks with peers accountants and other professionals and this is where transparency is key. So easy. Access to investment performance data and market information gives clients a peace of mind and transparency with the advisor.
What is the value of segmentation? How does segmentation impact client coverage?
Segmentation in wealth management allows firms to optimize resources, tailor advice, and enhance client satisfaction by addressing the specific needs of different client segments. Deloitte’s research: segmentation provides value beyond resource allocation; it drives the quality and relevance of advice provided. By understanding and categorizing clients by wealth level, background, and individual needs, advisors can offer more targeted services that align with client expectations and preferences. For example:
Inherited Wealth Clients: Tend to value relationship quality and brand reputation over convenience.
Entrepreneurial Clients: May prioritize convenience and flexibility, often influenced by their fast-paced and adaptive lifestyle.
High-Net-Worth Clients: Place a premium on regulatory compliance, investment performance, and service quality.
This targeted approach enhances the client experience by catering to specific expectations, ultimately building stronger, more personalized client relationships.
For example, it would be challenging the same private banker/wealth manager to cover an athlete and retiree for ex as they have different lifestyles and different needs. A professional athlete and an expatriate retiree have vastly different financial needs—athletes need strategies for wealth preservation, tax planning, and income volatility, while retirees prioritize stable income, tax efficiency, and estate planning. Due to these distinct requirements, it would be challenging for the same private banker to effectively cover both without specialized expertise in either area.
