Effective segmentation can help you serve a diverse client base and build an efficient and profitable practice. When implemented properly, a segmentation strategy can also improve client satisfaction.
“Segmentation cuts across all the primary activities of financial advisors — marketing, sales and service,” says George Hartman, CEO and co-founder of Elite Advisors Canada in Toronto. “It involves more than numbers and revenues. You have to consider qualitative as well as quantitative variables.”
Here are some segmentation strategies to consider:
> Sort clients by account size
Make a list of all your clients by account size to determine your high-asset, medium-asset and lower-asset clients, says Raymond Yates, financial advisor and senior partner with Save Right Financial Inc. in Mississauga, Ont.
This exercise will give you an idea of your clients’ ranking in terms of asset levels. But, Yates says, clients with the most assets are not necessarily your “best” clients.
> Sort by revenue
Asset levels are not the only measure of client value, Yates says. “Some clients with more assets may generate less revenue than some clients whose accounts are smaller.”
Hartman recommends ranking your clients by revenue, from highest to lowest. Revenue, he adds, is a “true” measure of your most valuable clients.
When ranking clients by revenue, Hartman says, you will almost always find that there are “natural breaks,” in segments, based on a percentage of clients who generate a certain percentage of revenue.
For example, Yates says, the top 20% of your clients might generate 60% of your revenue. These clients become your A clients, while your next 50% become your B clients and the remainder your C clients.
> Use qualitative criteria
While quantitative variables such as size of assets and revenue are important, Yates says, some clients might be valuable to you because they provide you with referrals on a consistent basis.
You can measure the revenue earned from those referrals, but ranking the client on his or her own merits as “A,” “B” or “C” becomes subjective, making the use of a quantitative ranking inappropriate. During the discovery process with a new client you might determine that a “B” or “C” client has good “future value,” Yates says. This consideration may influence how you choose to segment such clients, he adds.
> Establish a matrix of services
“Every client is entitled to good service,” Hartman says. “But segmentation allows you to focus on your higher-value clients.”
You can build a simple, three-column matrix that identifies the services you offer, the frequency or level of service and who is responsible for delivery of those services. This step will allow you to put a structure to your segmentation strategy.
For example, Hartman says, you might decide to provide your best clients with four client reviews per year – two in person and two by telephone, and priority access to exclusive events. Your “B” clients, on the other hand, might get only two client reviews per year, while “C” clients are served by your assistant.
“Each level of service is a subset of the matrix,” Hartman says.
> Segment by product demand
Some clients might use a greater range of products, such as annual updates of their financial plans, tax planning and life insurance. These would be your high-value clients, Yates says, who would require greater involvement on your part. They also might require the use of your associates or outside relationships such as accountants or tax specialists.
Says Hartman: “You should introduce your best new products to these clients first.”