As the demographics of the wealthy change and their lifestyles become ever more global, client segmentation is increasingly a hotly debated topic across the wealth management industry.

A recent report by Celent, entitled Wealth Management in North America: Clients, Products, and Providers said the following on the subject:

“Wealth management is not simply a matter of defining a customer demographic; instead, it is a matter of understanding and managing the intersection of specific client segments, products, and distribution channels. It is at this point of intersection where the opportunity for success or failure presents itself to each wealth management firm.”

In January 2007 Financial Planner magazine found that close to 80 per cent of high-revenue wealth management firms in North America employed a client segmentation scheme and that the higher the firm’s revenue, the less likely it was to use assets under management as the only means by which it segmented its client base.

Last week, Jacqui Brabazon, the global marketing director at American Express Private Bank reingnited debate by saying that strict client segmentation could obscure the best interests of the client, saying “In our industry segmentation is very difficult to do well. It can also be risky.”

Talking to a number of wealth managers, for the majority it seems that rather than shoehorning clients into pre-defined boxes, an element of segmentation is the practical basis of a client-centric approach. The rationale is that there will tend to be some commonality of needs between different groups of clients.

Nick Tucker, a managing director of Merrill Lynch's Global Private Client Group and market leader for the UK and Ireland, believes that segmentation applied inflexibly can be “cataclysmic”, but that no segmentation at all is equally dangerous:

“Clients hate to be put in any box and to be put into what they perceive to be wrong box is a recipe for disaster. To be successful, client segmentation must be applied intelligently and flexibly. For example, we might have a client who is an entrepreneur but who has a fantastic relationship with a person who runs a smaller institutional portfolio. In this instance we must respect the relationship and the client’s wishes.

“That said, a wealth management offering needs to be structured. For us segmentation is both a science and an art. We tend to segment by the offering and delivery mechanism that sits best with the client.”

Mr Tucker goes on to explain that there are three broad pillars to Merrill Lynch’s offering – advisory, discretionary and wealth stucturing and that as most often a client comes to a wealth manager for a particular service, it is always vital to satisfy that initial, most pressing, need first before any client segmentation is implemented.

According to Mark Kibblewhite, managing director, Barclays Wealth, the challenge is to segment to identify and meet the needs of a diverse client base without creating undue complexity.

“The wealthy today come from all walks of life and wealth management clients demand a private banking service and the attendant exclusivity whether they have investable assets of £500,000 or £500 million. It is important to create a partnership with each client, so meeting their exact requirements at the appropriate price is a must and effective segmentation is key to making the right returns both for the clients and the business.”

UBS operates using broad client segmentation by value of client through its family office, key client, ultra high net worth and high net worth areas, but states that each client is treated as an individual to suit their particular needs.

Whilst segmentation has traditionally been by value of client, it is possible to segment along various parameters and increasingly wealth management firms now think in terms of occupational segmentation.

Both Barclays Wealth and Coutts have specialist teams concentrating on the particular needs of entrepreneurs and those in the sports, media and entertainment industries, who tend to earn large sums in a short space of time. New wealth is also important and Coutts also has a fast track scheme for those under 30 earning ÂŁ100,000 plus or under 40 and earning ÂŁ150,000 plus and UBS has recently set up a team catering for professionals and executives.

Other means by which private banks segment clients include behavioural or psychological criteria – attitude to risk, motivation, level of advice. Geographic segmentation is increasingly important as wealth becomes increasingly recognised as national and global.

Last year UBS appointed Peter Hall as a managing director to head up its regional efforts in the UK and Barclays Wealth appointed Mark Wareing and Nimrod Schwarzmann as regional directors Northern England and London respectively.

According to Claire Symonds, marketing communications manager for Coutts, client segmentation has been extremely beneficial for both the business and clients:

“We believe that Coutts was the first private bank to adopt client segmentation and it has proved hugely successful. A particular client set will have similar needs and this allows private bankers to build expertise in particular areas to meet those needs. For example, when our landowners team was first set up, the private bankers undertook a course with the Royal Agricultural College in Cirencester which gave them basic knowledge of the agricultural sector and estate management which they found so valuable, they undertake a refresher course each year.”

Ms Symonds stresses however that there is often a blurring of segments and clients’ interests will regularly overlap, so a one size fits all approach will not work and flexibility is still required.

Mr Kibblewhite believes that high calibre staff are crucial to retaining a personal service and seamless approach to ensure each client sees the most suitable experts for them.

“Whilst effective segmentation is important, talented employees are key to delivering this, and the successful firms will be those who focus relentlessly on hiring, developing and retaining top performers from diverse backgrounds who understand and meet clients’ needs.”