Segmenting Financial Institutions' Most Dedicated Customers MacroMonitor Marketing Report Vol. VIII, No. 4 January 2008

Introducing CFD's New Affluent Core Customers Segmentation

In the race to win affluent consumers' savings and investment dollars, a company must understand what motivates the consumers' choice of financial institution. What leads one household to choose an insurance company, another a mutual fund company, and still another a stockbrokerage firm or financial-planning company? To what extent are consumers' choices of institutions influenced by economic trends and fluctuations in the stock market? How much can a company learn about these groups of savers and investors that can help drive sound strategic planning and guide better tactical decisions for marketing financial products and services?

A critical limitation of financial-services-providers' understanding of their market opportunity is that the most they can know directly about a customer's financial behavior is the business that the providers have with that customer. Their direct knowledge of their prospects is often virtually nonexistent. With "organic growth" emerging as an important means by which to increase future earnings, an increasing need is for information that clarifies the many diverse elements of households' finances. We believe that isolating and analyzing financial institutions' core customers ultimately will lead to more loyal, satisfied customers and enhanced organizational appeal to a broader potential market. Efforts to grow assets under management "organically" face numerous challenges. Understanding the interrelated needs and desires of customers is crucial and difficult. No less daunting is prospecting in the customer pools of direct competitors and, increasingly, in those of other types of institutions-institutions that are all competing for a finite number of affluent households' savings and investments dollars.

CFD's new Affluent Core Customers segmentation looks at financial institutions' understanding of their most committed affluent customers-those who entrust the greatest proportion of their savings and investments dollars to a specific type of institution.

  • At the peak of the stock market run-up in the late 1990s, brokerages briefly displaced banking institutions as the most-used-institution category for Affluent households' financial assets. After the stock market corrected, a significant number of Affluent households retreated from the notion of a "new paradigm" for investing in stocks through a full-service or discount brokerage and returned to depository institutions. Although a higher percentage of Affluent households now hold a majority of their assets in banks, the total dollar value of their assets held in brokerages dwarfs the value of bank-held assets.
  • The incidence of households' opting to place the lion's share of their nest egg with one or more financial-planning companies has nearly doubled in the six-year period from 2000 to 2006. Our data on Affluent households' actual and preferred type of "primary" financial institution suggest that the popularity of financial-planning companies continues to grow.
  • Affluent households in the Mutual Fund-oriented segment (households with most of their savings and investments in one or more mutual fund companies) have mean and median balances in financial assets that are roughly similar to those of Planning-oriented households (households with the bulk of their financial assets at financial-planning companies). The two groups also have similar shares of wealth based on aggregated financial assets, but in many ways, the two are opposites in how they value and use financial professionals.
  • The Insurance-oriented segment has the smallest number of households. Although many households have insurance products that they buy through intermediaries, very few indicate that the bulk of their assets are invested with insurance companies.
  • A considerable number of Affluent households continue to have substantial assets in pension plans. These households appear to rely heavily on their pensions for retirement income.