The Power of Market Segmentation: How Many Types of Financial Advisors Can You See?

Francois Gadenne has graciously agreed to cover for me until my return on May 16. He will be contributing a variety of essays addressing contemporary and future retirement income opportunities and challenges.

RIIA’s Research Committee commissioned its first study on customer segmentation. This was not an accident. When your membership comes from all business silos in the industry, it is important to validate a joint understanding of market segments before the discussion becomes too involved. Based on personal experience, unproductive arguments between members occur when the debaters refer implicitly to different market segments.

Similarly, RIIA’s Education Committee is developing a segmentation of its own customers, the Financial Advisors (FAs). This effort started with the feedback we received on the first training program. Ratings ranged from great to could-be-better. The ratings showed a consistent pattern. Specific ratings levels matched specific FA types.

During our February 2007 MRI conference, David McClellan presented the following FA segmentation:

  • Product Sellers
  • Asset Gatherers
  • Investment Managers
  • Insurance Planners
  • Financial Planners
  • Wealth Managers

Details on these FA segments included:

Product Sellers are transactional reps. The primary investment vehicles they use include Mutual Funds, Variable Annuities, and individual Equities. They are Series 7 and Series 6 registered as well as insurance licensed. Their primary channels include Banks, Insurance Broker/Dealers and Wirehouses. There are about 175,000 Product Sellers and their average Assets Under Management (AUMs) per client range from $50,000 to $200,000.

Asset Gatherers are relationship-driven salesmen who outsource the investment management function. The primary investment vehicles they use include Mutual Funds and Separately Managed Accounts (SMAs). They are Series 6 and 7 registered. Their primary channels include Wirehouses and Independent Broker/Dealers (IBDs). There are about 95,000 Asset Gatherers and their average AUMs per client range from $200,000 to $10 million.

Investment Managers are analytical portfolio managers who do not focus their practice on having high client skills. The primary investment vehicles they use include Mutual Funds, Exchange Traded Funds (ETFs), SMAs, and individual Equities. They are Series 6, 65 and 7 registered. They also favor the Chartered Financial Analyst (CFA) designation. Their primary channels include IBDs, Registered Investment Advisors (RIAs), and Wirehouses. There are about 50,000 Investment Managers and their average AUMs per clients range from $200,000 to $10 million.

Insurance Planners are sophisticated insurance salesmen who sell life insurance solutions. The primary investment vehicles they use include Life Insurance and Variable Annuities. They hold specialized insurance designations. Their primary channels include IBDs, Insurance Broker/Dealers and Wirehouses. There are about 37,000 Insurance Planners and their average AUMs per client range from $50,000 to $3 million.

Financial Planners offer comprehensive financial planning processes and are often fee-only. The primary investment vehicles they use include fee-based planning processes and software, Mutual Funds, ETFs and SMAs. They are series 6 registered and favor the CFP designation. Their primary channels include IBDs, RIAs, and Wirehouses. There are about 18,000 Financial Planners and their average AUMs per client range from $50,000 to $3 million.

Wealth Managers are members of High Net-Worth (HNW) teams who act my the investors Chief Financial Officers (CFOs). The primary investment vehicles they use include SMAs, Hedge Funds and Trusts. They hold various registrations, licenses and certifications. Their primary channels include Wirehouses, IBDs, and Bank Broker/Dealer or Trust Departments. There are about 24,000 Wealth Managers and their average AUMs per client are greater than $3 million.

Such segmentations make it possible to tailor programs to specific FA audiences. We are interested in your input as we seek to improve our own FA segmentation in general and our Education programs in particular. Please send Ron DeCicco or John Carl an e-mail. You can find their contact information at www.riia-usa.org .