While there is no precise definition for each segment, clients are commonly classified as:
1. Affluent: These are clients who have a net worth more than $100,000 but less than $1,000,000.
2. High Net Worth: Clients who have a net worth of between $1,000,000 to $5,000,000.
3. Very High Net Worth: Clients who have a net worth of between $5,000,000 to $50,000,000.
4. Ultra High Net Worth: Clients who are worth more than $50,000,000.
These classifications gives private banks an indication of the value of assets that they could potentially manage (known as Assets Under Management, or AUM in short) and hence, the potential revenue they can earn from each client. This helps banks tailor products and solutions that match potential revenue. These classifications also vary across different banks and institutions.
Some other current client segments include the needs of the client, risk appetite and source of wealth.
Not all High-Net-Worth Individuals (HNWI) have similar needs. Some want an investment professional who can actively advise him or her and, as such, require intensive contact. Others may take a more simplistic approach to their investments and are happy to let their private banker make most of the investment decisions.
A client’s risk appetite could include a target return, investment horizon and investment objectives. Private banks can optimise resources by recommending a specific set of investment products and solutions to clients with similar risk appetites.
Age is an important differentiator in client segmentation as it can be used as an indicator of the client’s stage in life and investment objectives. A young HNWI who is 10 years into his career would have different investment objectives compared to an older HNWI who is nearing his retirement.
Source of wealth
The source of a client’s wealth can be an important indicator of his attitudes towards his assets and how he wants to invest them. Clients who have earned their wealth through their business and those who have inherited their wealth would conceivably have different investment approaches and objectives and thus, require different levels of service.
In essence, while liquid assets as a classification still serves as the dominant form of client segmentation for private banks, there are many other aspects of clients such as the aforementioned for a bank to consider in order to produce truly tailored service.