Beware of 'Over-Segmenting' Your Clients

Merrill Lynch's success with the digital adoption of its products and services shows why advisors and financial services firms should avoid targeting one demographic segment, according to April Rudin, a financial services marketing strategist and CEO of The Rudin Group.

During a recent WealthTech Today podcast produced by the consultancy Ezra Group, she discussed the importance of a comment made by Kabir Sethi, managing director and head of digital wealth management at Merrill Lynch: The vast majority of Merrill clients with over $10 million in assets, 85%, have shown that they are the fastest and quickest investors when it comes to adopting digital offerings.

That "really flies in the face of what people are thinking" when it comes to who is adopting digital products and services the fastest, Rudin said.

A Merrill Lynch spokeswoman confirmed the data. "Today, 77% of Merrill clients are actively using our digital platforms for more of their needs," the spokeswoman said by email. "Engagement levels are even higher among" the firm's ultra-high-net-worth (UHNW) clients, she added, noting "85% of clients with $10M+ are digital adopters."

It's not only age that defines what an investor is looking for from their wealth manager, according to Rudin. "It's really about behavior," she said.

Similarly, "women are not all the same" either, so "having products oriented [just at] women doesn't really work," the fintech expert said.

Issues Tied to 'Over-Segmentation'

When Rudin founded her firm nearly 13 years ago, there were "many old, tired wealth management brands — whether they're bank brands, RIA brands, technology brands everyone in the ecosystem, a lot of really old brands — that didn't resonate with younger investors," she recalled.

It remains "relevant to appeal to a wide range of investors and buyers because certainly today, even tech vendors are selling to a younger-aged person, so the idea that your brand needs to resonate across multi generations is still really valid," she explained.

However, "where I think this whole idea really went awry was in terms of over-segmentation — in other words, people thinking these products or these services are for millennials" only, Rudin said, pointing to robo-advisors, online trading, online portfolios and general digital products and services as examples.

"When you dig down into it, you can find out that it's really not about millennials," she explained, referring to the potential audience for digital products and services.

"Year after year, [Capgemini's World Wealth Report] produces statistics saying that the highest digital adoption is really among ultra-high-net-worth baby boomers," Rudin noted.

It seems clear that "people miss an opportunity by over-segmenting and thinking too narrowly about digital offerings," said the marketing and fintech expert.

'Missing the Mark' With Women

Ezra Group CEO Craig Iskowitz explained that this point "was lost on a lot of firms that started up female-only targeted robo-advisors or other firms that just didn't get a lot of traction because they didn't realize that [female-only targeted robo-advisors] is not a thing."

Although women represent an important segment, "There are certain behaviors and not certain products that you need to focus" on to reach them, according to Rudin.

"Something like 75% of widows change financial advisors within the first year of their husband's death. … It might be a surprise to some [that] advisors really haven't taken the time to develop a relationship with both" the husband and wife, she said.

"Oftentimes in relationships that are functional, the husband and wife work together on these things and they're a team, so why not approach them that way rather than pitting one against the other?" Iskowitz said.

"The best firms are the ones that help the spouses collaborate and help the spouses learn rather than trying to tear them apart saying 'well you want this and you want that,'" he explained.

Wives tend to outlive their husbands, "so women are becoming the inheritors" often, Rudin pointed out. "Women are also creating wealth themselves. A large number of women are trying entrepreneurship for the first time. So women are a really important cohort for financial advisors to think about."

But, she stressed, it's important "not to over-segment."

Instead, "You want to think about behavior and lifecycle events like I just mentioned — for example, living longer than men," she noted. "These are statistics that advisors should pay attention to, but it doesn't mean that they should come up with pink products or a pink website."

Rudin also cautioned advisors to not think that female clients necessarily prefer working with female advisors. "Some women might want to work with women, [but] other women don't want to work with women — [so] you can't generalize about what all women want to do," she explained.