March 9, 2022 – Summer is coming, so on a whim, you search the internet for “best gas grills for 2022.” You know that this simple inquiry will subject you to what seems to be never-ending solicitations from anything remotely related to gas grills. But you can’t help yourself. Welcome to “customer segmentation.” Customer segmentation is the process by which companies divide their customers based on common characteristics – such as demographics or behaviors – to market to them (you) more effectively.
The financial services industry provides services and sells products to “clients” and likewise performs their practice of client segmentation. Their algorithms are much more straightforward – the focus is on money -how much you have and how much you earn! Labels such as “starting out,” “mass affluent,” “high net worth,” “very high net worth,” and “ultra-high net worth.” Translation – from having no money to having more than enough! The firms then develop a “niche,” aligning specific services and products for a particular client segment. They create answers that will resonate with the segment, and they search for clients who have the appropriate questions they can answer. Sometimes the problem is “when you are a hammer; everybody looks like a nail.”
What if we redefined client segmentation as the process by which companies divide their clients based on common characteristics – such as demographics or behaviors – so that they can be serviced more effectively?
In our role as Financial Life Guides, we help our clients achieve their optimal life. Two objectives might inspire a person to seek the services of a Financial Guide:
1) They need help now, or recognize a need for a change to occur, but do not feel confident or qualified to get through the life transition alone.
2) They recognize the importance of money in achieving financial freedom, but do not feel confident or qualified to manage their wealth.
Being able to satisfy these objectives is less about segmentation and all about understanding motivation. As you could imagine, underlying client motivations are as unique as the individual seeking guidance. We find it meaningful to broadly identify our clients by their Life Motivation and Financial Motivation.
We identify three different mindsets that people possess when they contact us: 1) Adapting, 2) Coping, and 3) Seeking.
ADAPTING: Change is the only constant in life. So, it should not be surprising that most people seek help with all that life presents them. While money may be the topic that gets our firm engaged, the inter-relationship of their life and their money becomes the focus. Fragile relationships, uninspired work, or persistent demands on time become obstacles to personal progress. They are the root causes of unhappiness; money becomes the usual scapegoat.
The classical approach to help people who are adapting is to help them feel comfortable with change. But first, there is a fair amount of introspection required to determine the extent of change that is necessary. We provide clients the personal space to define what is appealing to them in the short term, medium term, and long term through exploration and visualization. They can make impactful decisions, become more confident with successes, and become less concerned about mistakes. They have a plan to follow until it no longer makes sense. We all have to plan when we will need to change the plan!
COPING: Coping involves adjusting to or tolerating adverse events or realities while you try to keep your positive self-image and emotional equilibrium. Coping occurs in the context of life changes that are perceived to be very stressful. Loss of a spouse or loved one, divorce, ending a long-term relationship, caring for an aging parent, or termination of employment are all examples of events that create a significant transition moment. When these events are expected, coping mechanisms might already be in place. A sudden event can be devastating, causing periods of anxiety and stress.
People experiencing significant transitions possess a mindset that makes it challenging to consider any opportunities. They are operating “in the moment” with negative emotions, worry and concern. They need time to heal and receive a steady dose of positive reinforcement. We would perform “financial triage” for the most urgent matters but realize the client cannot or should not make any decisions of consequence. It could be months, or possibly years, before clients can transition to adaptability.
SEEKING: Sometimes, there comes the point in our lives when we realize “there has to be something better.” It comes from a place of self-reflection, not a harried frenzy. The feeling is more emptiness than unhappiness, and it’s more about you and not the environment around you. A perfect example is a “mid-life crisis.” You know that time in one’s life where you feel an emotional crisis of identity and self-confidence. It sometimes is the stage right after coping when clients are ready to do something “really different.” Surviving a complicated divorce brings the hope of self-actualizing and achieving all that is possible. It could result from “beating the odds” of a medical condition or situations where you feel that you have a “new lease on life.”
There is no better feeling for a Financial Life Guide than to help someone find what they are seeking. When clients seek their legacy, something external to themselves but impactful to others in society, it brings an extra-special purpose. It can define their life and provide never-ending experiences for years to come. Some people just know what that is, but for most, it is often illusory. That’s OK because just getting on the path to find your purpose might yield the legacy meant for you.
Our mindset, the way we approach our lives, is the starting point for “Cognitive Psychology”- the science of how we think. How we think determines how we feel and directs us to how we act. Our ability to take action and change behavior is essential to achieving an optimal life in the face of an ever-changing world.
In Part 2, we will overlay an understanding of changing financial motivations that people must deal with over a lifetime and the flexible approach required to address them. Stay tuned.