Tools for segmenting your client base
With events-based reporting now in full swing, a segmentation strategy may help SMSF firms to manage different levels of client needs.
This financial year saw the introduction of events-based reporting and some significant changes around the calculation of exempt current pension income. Given that clients with a total superannuation balance above $1 million are required to report events on a quarterly basis, while those with balances below this report on an annual basis, this means certain SMSF clients require greater attention and care than others. Segmenting clients into groups based on the services they require can be an effective way of managing this.
The days where firms could have the same service for all their customers are long gone, according to Ray McHale, chief executive of fintech company My Next Advice.
“Everyone is becoming more specialised and focused around their area of expertise, who they support and what their perfect client looks like. So one size fits all just doesn't work as well as it used to,” explains Mr McHale.
Strategies for grouping your clients
Segmentation, he explains, is about dividing a client base into groups of individuals that have some similar characteristics that are relevant to the business in terms of its market and the delivery of its services.
“Some examples of that with SMSF clients, for instance, could be regularity of engagement or contact with the client, it could [be] where they live, their risk profile, their age or what kind of products and services they use. So there's a whole range of different characteristics you could use potentially,” he says.
Mr McHale says there is unlikely to be one type of strategy that’s going to be suitable for every business, and that firms should look to use a strategy that is specific to their business.
“[Think about] what makes sense to you in terms of how you want to manage and service your clients,” he says.
Smarter SMSF chief executive Aaron Dunn, who has conducted a lot of research around how SMSF firms plan to deal with various changes happening in the industry, including events-based reporting, says the first real challenge with the transfer balance account reporting is thinking about quarterly versus annual segmentation.
Different businesses will adopt varying methods for dealing with the reporting, depending on their scale, the mix of clients they have, and what systems and automation they already have in place.
“Businesses in the first instance need to work out whether they are ready to do reporting on a quarterly basis. We've seen a lot of practices move to cloud-based technology on the basis that they expect to obtain efficiencies through automation and so forth, but fundamentally they haven't changed the way in which they do their work, so that presents challenges in itself, because it means that to move to quarterly they’re actually going to have to change how they go about doing stuff,” he explains.
Some SMSF businesses, he says, may decide that if they’re going to have to switch to quarterly reporting for some clients, then they may as well transition their whole business and their entire client base to quarterly reporting, regardless of whether clients are required to or not.
“Therefore the need for some level of segmentation might not need to exist. We did some polling in a survey in June and there was around a quarter of the practices, around 20 to 25 per cent, that tended to say ‘well look we've calibrated the systems in our practice to be able to be deal with ongoing reporting for our clients whether that's quarterly, monthly or even daily’,” he says.
For those practices that have already changed how they’re working, he says, it makes sense to not worry about the segmentation and just build in quarterly reporting regardless of the type of client.
Given the concession that exists in the transfer balance reporting framework allowing for annual reporting where the total super balance is less than a $1 million, other practices may decide that segmenting clients into groups based on balance size may be a better way to go, Mr Dunn explains.
“The larger majority are saying ‘well look if we don't need to do as much work on an ongoing basis for some as we do for others, then we need to contemplate what measurements we need to put in place in our business to ensure that we capture clients that have ongoing obligations versus those that don't,” he says.
Mr Dunn says practitioners may choose to separate clients based on the $1-million threshold used to determine the frequency of when events need to be reported.
“It’s a static number so therefore you’re in or you’re out,” he says.
“It doesn't actually mean that we're going to report on an ongoing basis, because we need to think about what benefit payments people are taking out so the level of pensions that they're withdrawing and the strategies that it might come with that versus someone that might take more than the minimum pension each and every year,” he says.
Even though some clients may have over $1 million and are, therefore, subject to the quarterly reporting regime, the fact that they only take the minimum literally every year would mean that there's not going to be any real ongoing quarterly requirements, he notes.
“So thinking about cash flow with your clients, how practices are going to engage with clients, whether they're going to take the responsibility themselves to keep up to date with data feeds because they've got all the data feeds so they can capture all the information about their funds - they are a couple of things that we saw as other trigger points beyond just that $1 million threshold,” he says,
Updating technology and systems
At an absolute minimum, SMSF practitioners at least need to have regular data feeds in order to be able to know what’s happening in different funds, says Mr Dunn.
“You need to have constant information coming to see what's actually happening in the fund to be able to make decisions on a timely basis. That’s not just from the perspective of the TBAR requirements but you've also got other legislative issues now around what is a valid commutation, the fact that those need to be done prospectively to ensure that it is a valid commutation,” he cautions.
SMSF software, he says, is really starting to evolve and is providing far greater visibility of funds.
“We're starting to see far more dashboard applications or analytics tools that allow us to see which clients have reached certain tipping points, and that tipping point may be the minimum pension, the contribution cap or the total superannuation balance. From there we can then undertake the next step,” he says.
A few years ago, Mr Dunn says that this would have required a lot of manual intervention by practitioners, but technology can now allow practitioners to review funds quickly and manage funds based on particular legislative implications.
“For example, it could be a pension payment. It could be an alert that appears once that client has reached a certain level of pension. That provides an opportunity to say ‘well actually there are some options here that this person has in terms of the next payment that's coming out, whether it's treated a pension or whether it's an amount that will impact their transfer balance’.”
Mr McHale recommends that firms also look at investigating customer relationship management (CRM) systems that can help capture and organise information about clients.
CRM systems, he says, can capture information such as their contact details, the products and services they use, and financial data about the revenue they generate as a client, their profitability, and their lifetime value.
“Lifetime value assesses the future profitability of each of your clients based on their lifetime,” he says.
“Segmentation is a good way of identifying which clients you should be spending more time with, and those that you are spending a lot of time with today that you perhaps shouldn't. At the end of the day, client relationships should be about building profitability for the business.”
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates. Miranda has also directed SMSF Adviser's print publication for several years.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.