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Identifying opportunities with client segmentation

By Ray McHale
March 31 2017
9 minute read
Identifying opportunities with client segmentation
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Client segmentation can help SMSF practitioners predict the future profitability of clients and tailor appropriate service models and fee structures to them.

Understanding client segmentation can help advisers see the opportunities available to those who recognise that a ‘one size fits all’ approach is no longer a viable option for modern practices.

So what is client segmentation? It is the practice of dividing a client base into groups of individuals that are similar in specific ways relevant to marketing and service delivery, such as age, gender, interests, life events, risk profile, investable assets, etc.

The imperative for segmentation

Client segmentation is a key contributor to achieving profitability. The application of clear segmentation brings with it many advantages, including the ability to tailor service offerings and produce more satisfied clients which, in turn, helps boost revenue and client referrals.

Your clients now live in a highly digitised and information-dependent world and, as a result, are becoming more demanding about the speed and personalisation of services they receive based on their personal circumstances and needs.

The financial planning industry is becoming increasingly competitive, so it is vital that practices pinpoint which client types and service mix they are best equipped to support, and how they can maximise their competitive advantages and differentiators.

Success will centre on how well you can identify your most profitable clients and provide high-quality services to support them. People have different needs and expectations. That means having the flexibility to offer your target clients the right products and information via the right channels at the right time. Done well, segmentation can help you gain the insights you need in your business to meet those demands, and maximise your share of each client’s wallet.

Traditional approach – the dangers

While the level of segmentation detail is improving across the industry, many practices continue to classify and service clients according to traditional, limited methodologies, usually by grouping clients into buckets based on the size of their investable assets and the revenue they generate. The resultant groupings may then be used to offer each segment a standardised menu of services.

This blanket approach is far too simplistic and does significant damage. Even where clients may appear similar from a financial standpoint, behind the numbers there can be huge disparities in risk profile, market knowledge, future requirements and communication preferences. These variations call for a very different relationship approach.

For example, one client may want an advisory-based relationship and will welcome frequent contact to discuss investment ideas. Another with the same level of assets may have little financial acumen or desire to manage their investments and may prefer an arms-length discretionary mandate. A client’s tax status, age and risk appetite can be of vital importance, as it may determine whether certain investment vehicles are suitable or not.

Unless your clients are segmented in an appropriately granular way, practices risk:

  1. Failing to understand which clients are profitable or not, and what future profitability potential they offer.
  2. Devoting disproportionate amounts of time and resources to unprofitable or low-profitability clients.
  3. Compromising relationships with clients by not providing the level of service or types of services they want or need.
  4. Missing out on upselling and cross-selling opportunities by failing to offer clients relevant solutions.

Client segmentation enables practices to focus both their client servicing and business development efforts more accurately and efficiently.

Clients expect the personal touch

More than ever, your clients want and expect a greater level of personalised services. After all, personalisation has already become so much a part of their everyday lives in the retail industry, where online shopping sites, supermarkets, and consumer giants have become adept at gathering and analysing information on customer profiles, behaviours and preferences to better understand their clients and forecast what products and services they may want.

Today, practices must work harder to keep clients satisfied. In general, loyalty has been declining, with wealthy individuals more mobile with their money, abetted by a flood of information that makes it much easier to compare providers. The quality of investment advice and performance remains paramount. But, increasingly, it is by providing the right type and level of services that practices will be able to differentiate their offering, justify the fees they charge and attract and retain clients.

In a busy, highly competitive world, it is the small things that can and often do make a big difference. Properly segmenting clients, to provide the required detailed analysis and thus the right level of service sophistication, makes that possible. When allied to client-centric technology tools that help advisers provide standout servicing and insightful investment guidance and solutions, practices can better meet their clients’ evolving needs and wants and strengthen those all important relationships.

But beware, not every client is born equal, however, it is possible to personalise to some extent no matter what segment the client is assigned to, provided each client’s expectations are carefully managed.

A better way

Thanks to today’s information age and the tide of regulation, planners have access to far more data about their clients. For example, the various social networks offer opportunities for advisers to gain more information about their clients’ status and preferences, both professionally and socially. Also, tighter client ‘best interest’ requirements mean planners must gather a lot more detailed information during the onboarding process and ensure they keep it regularly updated.

Armed with this level of detail, planners can more effectively segment their client base. Inevitably, needs vary. The level of segmentation and degree of service personalisation in part depends on the practice’s business model and target market. Specialist planning firms that cater to the high-net-worth segment, where each client makes a larger contribution to the practice’s overall profitability, will be expected to provide extremely personalised services. Whereas less specialised practices will need to adopt a broader segmentation model – using perhaps five or 10 buckets, with various sub-categories – if they are to get the right mix of cost effectiveness, service personalisation, flexibility and profitability.

Metrics for better segmentation

Both quantitative and qualitative factors play an important role in formulating a fit-for-purpose segmentation model that can accurately capture each client’s current and potential value to your practice. Elements to consider include (but are not limited to):

Total wealth

Classifying clients based solely on the assets held by your practice does not give a true picture of their actual wealth, revenue potential or service expectations. Identifying their total wealth – including assets held with other planners, as well as in real estate, business investments, etc – allows you to determine the potential for acquiring additional assets, the resulting value that relationship could bring, and thus the appropriate level of service to provide. Completion and updating of a comprehensive client information questionnaire is required to identify total wealth.


Factors such as age, sex and family status will impact on whether a client is accumulating or distributing assets, their investment goals, service requirements and revenue potential.

Risk profile

Accurately capturing each client’s risk profile is vital to ensure you target the right investment products to the right customers at the right time. Trying to sell them inappropriate products could jeopardise the client relationship, as well as being a waste of your time and resources and falling foul of the client ‘best interest’ requirements.

Tax status

Various investment vehicles are only appropriate for investors with a certain tax status. Selling a client a product on which they subsequently have a punitive tax liability could diminish your firm’s standing and weaken the relationship.

Fee structures

What is your client’s preferred fee model? Are they resistant to paying fixed fees, but comfortable with performance-related ones? By tracking this information, you can determine how much flexibility you have to amend your fee schedule, and which clients to focus your sales efforts on when launching new services with particular fee structures.

Career status

Has the client reached a career plateau or have they just received a major promotion with a big income increase? Is the client a young entrepreneur with a rapidly growing business or a near-retirement company owner about to pass over the reins? Such factors will have a significant influence on the services they are interested in, their future potential value and how they should be serviced.

Communication preferences

There is no single definition of great service. Knowing your clients’ communication preferences will help strengthen the relationship by ensuring you can respond to their service expectations in the desired way. Some clients prefer traditional contact through phone calls or face-to-face meetings. Others, especially the upcoming digital natives, may prefer to communicate electronically via email, social channels, etc. When and how frequently they want to be contacted will vary as well. For example, busy people who are always on the road may only want to be contacted in the evenings or on weekends. Getting these touch points wrong risks causing annoyance.

Network value

The value of a client relationship may extend beyond the direct revenue they generate personally. So while a client may not be growing their assets or be particularly profitable themselves, over the years they may have referred many good clients to your firm. Having the right network can be extremely important. A client who is well connected in a potentially lucrative target segment could prove hugely profitable if the quality of service they receive converts them into advocates for your practice.

Cost to serve

Some clients may take up so much of an adviser’s time or want such an individualised service (for example, highly tailored reporting that takes days to prepare) that it is not cost effective to retain them as a client. In such situations, if the client cannot agree either to reduce their service demands or increase their fee, it may be better to terminate the relationship. Having the right segmentation gives you the necessary insights to see what service levels you can deliver and whether the service expected by a client is sustainable.

In this way, you can focus on providing a best-in-class service for your segment sweet spots and enhance the long-term profitability of your practice.

Reaping the rewards

Formulating and implementing a detailed client segmentation project takes an investment of time and resources. But the rewards for action, and penalties for inaction, make it well worth the effort.

Increase productivity

As a rule of thumb, at least 20 per cent of a planner’s clients are unprofitable. Through effective segmentation, you can more accurately pinpoint the current and potential future profitability of your clients using tools such as client surveys. With these insights, you can optimise the amount of time and level of planner support devoted to serving each client, helping improve your cost-income ratios.

Efficient product and service mix

Segmenting clients into better-defined groups allows you to tailor the appropriate service models and fee structures to them, thereby enhancing the efficient allocation of internal resources and driving profitability improvements.

Marketing focus

Many sales and marketing campaigns adopt too much of a scattergun approach, producing a low return on marketing investments. Ensuring product sales efforts and the investment advice provided to each client are appropriately targeted will result in a much better return on your marketing efforts. It increases the chance of selling new services and attracting more assets, helping to improve the practice’s profitability. It can also enhance client satisfaction, loyalty and the prospect of future referrals.

Business development opportunities

The future success of your practice will depend on establishing, and subsequently reaching, ambitious yet realistic business development goals. By capturing more targeted information about your existing clients and the success of your current business model, you will be much better positioned to determine which segments to target and how best to serve them.

Management oversight

Awareness is the first step to sustainable improvement. More granular client analysis allows management to track whether their teams are spending time intelligently on clients who contribute to revenue growth. Feeding this information back to planners then creates a virtuous cycle of performance enhancements.


Client segmentation is a very important consideration for the modern advice practice for all the reasons cited above. If I can leave you with one final thought, it is this – having the right segmentation gives you the necessary insights to see what service levels you can deliver and whether the service expected by a client is sustainable.

Ray McHale, founder and chief executive, Valuiza