Abbie Tanner: Client Segmentation Matters for IFAs

by | Sep 23, 2013

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Client segmentation sounds tough, says Abbie Tanner, but it’s a key priority if you want to allocate your costs effectively:

Do you work with clients who actually cost you money to service? In business, we all acknowledge that some clients take up more time than others and therefore cost more to service. But have you ever done the analysis?

To be successful in our profession, and with your marketing strategy, you first need to understand what it really costs to service your existing clients and whether every client is in fact profitable. Taking this one step further, you then need to differentiate your services for distinct client segments.

My take on client segmentation is that it is a powerful tool to ensure that all of your client relationships are profitable. In the days of the traditional pre-RDR financial advisory firm – heavily driven by sales and underpinned by a ‘kill-eat’ mentality – little thought was given to the lifetime value of a client or their long-term profitability. The adviser was incentivised to make a sale and then move on to the next ‘kill’.


How RDR Changed the Game

As you can imagine, in an environment where the payday only arrived if or when advice was implemented, the adviser would have little regard for the cost of ongoing service or indeed if the client was the right ‘fit’ for the business.

This traditional approach resulted in the accumulation of large legacy books, characterised by the cross-subsidisation of clients to contribute to the overall profitability of the firm. Larger clients covered the cost of smaller clients who took considerably more time to service.

Today, we find ourselves in the post-RDR period. We had to make hard decisions about how we would deal with our legacy books (if we had them) and many firms are still working through that transition process now, some 9 months’ in. So let me ask you, how differentiated is your service offering for your different client types? How are you demonstrating value in order to justify your fees?


The Ideal Business

The ideal for any business is to create a single service for a homogenous group of clients, all with similar needs, wants and preferences prepared to pay fees akin to the level of service they receive. In this example your ‘ideal client avatar’ (ideal client profile) is easy to define, understand and therefore market to.

Unfortunately, this is rarely the case. When you first start out in business, you take on clients who will provide you with the cash flow you need, until you can build your book and then afford to be more selective. With this comes the problem of what to do with those clients that supported you from the outset, who don’t quite fit your model today (or can no longer afford to pay your fees).

Time for Change

With just a small amount of analysis it’s easy to identify distinct client categories that have emerged in your business, each one warranting a different service level.


In my opinion the Pareto principle can be applied to every advice business, irrespective of their size or tenure in our profession. By this I mean 80% of your revenue will typically come from just 20% of your clients.

An easy way to illustrate this is to step back and look at your overall client book. Add up your total Assets Under Advice (AUA), then consider how much of this is attributed to your top 15 or 20 clients. A lot of firms we work with simply list their top ten clients and notice a significant drop-off in AUA after that.

So why is it that the clients who pay you the least take up the most of your time to service? The simple answer: because you let them. Over time you have built your business and allowed your larger clients to subsidise your smaller clients. Smaller clients have been given a ‘free ride’ based on your inability to articulate your value proposition and charge them appropriately for the level of service they receive. Building a segmented offering and charging for your time will put a stop to this.

Avoid Gold, Silver and Bronze

Let me be clear: when I talk about segmentation, I’m not suggesting you create ‘gold’, ‘silver’ and ‘bronze’ categories (a very nineties approach). I recommend that you group your clients into segments based on their individual needs and preferences, then build your proposition around this.

Make sure you offer clients services that they are willing (and prepared) to pay for. If they want to move into a higher service category to access more services or benefits they can – they simply need to pay an additional fee.

Don’t make the mistake of believing that if a client has more money to invest she will automatically want more service and fit into your top service category. Take time to find out what the client really wants. If your top service category provides for four in-person meetings per year, but the client only wants two, allow for that and adjust your approach to meet their needs.

Furthermore, be careful to research any value-added services before you launch them. I’ve heard of financial planners building an exclusive private client offering for their top segment (£1m plus), complete with access to a luxurious concierge service. Their dream of providing a bolt-on service to meet the client’s every whim was quickly squashed when they realised that these clients already subscribe to their own concierge services or access similar benefits through their Black Amex.

Focus on Results

Adopting a segmented approach = more profit, more engaged clients and more time! Time you can spend making regular contact with the clients who are paying you the most and are also more likely to refer. You’ll be happier, your staff will be happier, your clients will be happier.

Effective client segmentation takes time. You will need to engage all levels of your business (advisers, paraplanners and support staff) to understand and map the activities involved in delivering each of your services, including how much time each task takes.

We use a ‘post-it note’ approach, where every activity is captured on a post-it note to provide visabilty on all inputs. Across the business you can see what goes into providing all of your services and where there is inefficiency or duplication. I find it also helps to visualise, group and bundle services to include in each category.

A word of warning: ensure you can deliver against everything you promise. Consider all of the business processes you will require to support the service delivery. Will your back office system support your segmentation? How will you monitor the clients in each category? Will you need to adopt time recording software?

Create bespoke presentations or ‘Fact Sheets’ for each service category and again avoid using generic terms like gold, silver or bronze. Also steer away from giving the client a choice. Select the service most appropriate to meet their needs, and if asked let them know about the other categories available. Should they elect to change to a different service level let them know what the additional cost will be.

Avoid the Complexity Trap

Be careful not to create too many service categories. You will overcomplicate your offering and suffer paralysis over how to deliver, monitor and maintain your service standards. Incentivise your staff based on their ability to help you to deliver support the service delivery. The best businesses are based on trust – doing what you say you will do, repeatedly.

In summary, when segmenting your client bank and creating a differentiated service offering always put your clients first. Start by considering the services you offer, the cost to deliver each one and how to bundle them together to create a packaged solution. Consider categories like the Business Owner, Retiree and Executive, each one tailored to their specific needs.

Don’t try to be too clever. Always focus on profitability. Systematise your processes wherever possible so you don’t re-invent the wheel. Remember, client segmentation is an ongoing and iterative process. You must test, measure and refine, ensuring you meet the needs of your clients both today and in the future.

Take Action:

Answer these questions to determine whether you need to adopt a segmented approach in your business:

  1. Would you like to increase the fees you charge and the overall profitability of your business?
  2. Do you want to free-up time to focus on activities your clients really value?
  3. How would it feel to know your team are completely focused, armed with a clear understanding of the value of their time?

If you answered yes to any or all of these questions, allocate time to identifying the services your client’s value most, then segment those services for your different client categories and use marketing to package and differentiate.

This article is the second in our series for IFA Magazine and taken from the white paper ‘Are you a farmer or do you eat what you kill?’ which is available for free download online at

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