Don’t lose out on hidden gems in your client bank, says Peter Welch, Intermediary Director at Equifax

Equifax Welch

The advent of the Retail Distribution Review (RDR) has created much discussion around client segmentation.  Indeed, in the last year and a half most firms have undertaken some form of analysi s of their client bank in order to ensure they’re delivering the most relevant service and fee model to their active clients.


Opportunity Cost

Any segmentation model must put the needs of the customer at its heart. But can any firm truly quantify how much revenue or profit is left untapped from clients who would both benefit from the advisory services on offer and can afford them?

If you think of an IFA practice like a family household, over its lifespan it’s not unusual to move property several times; children arrive, grow up and leave home, or there may be separation, divorce and bereavement.

As these life stages occur, a home will inevitably gather numerous possessions, many of which will become unwanted, unfashionable, unloved and sometimes unusable.  Some are retained for sentimental reasons while others are kept because it is perceived they will become useful in the future. Of course, others are simply in the home because the householder can’t be bothered to get rid of them. There are very few attics, garages or cellars that don’t hold a collection of old and unused household items.


Now, in a domestic setting there aren’t many consequences for keeping all this ‘stuff’ apart from the space it takes up. But if we see the household as a business and the ‘possessions’ as clients, then there are financial consequences or costs for just ‘warehousing’ what are essentially ‘assets’ of the business.

The trouble is, those costs aren’t explicit.  They appear in the management accounts of a business as ‘opportunity costs’ and, by taking no action, that is revenue lost.

If we think about the life of an IFA practice, then inevitably it has evolved over time. Business premises may have changed, advisers, partners and directors have all come and gone, mergers or acquisitions may have occurred – and, because of numerous regulatory and market changes over the years, the core proposition will have developed too.


Inevitably any segmentation of customers will have changed over time with customers classed as ‘A-grade’ fifteen years ago now possibly categorised as ‘unadvised’.   However, for those firms that have not been totally rigorous with their client management over the years there is still likely to be hidden value.

How To Value Clients?

In the run up to the RDR, segmentation has generally has been carried out to establish the service proposition and fee level offered. Using only the data available to the firm, this will probably be based on historical commission and fees earned, together with assets under management. It is also likely to be affected by a subjective view of the client relationship: “How much am I likely to earn from this client, and do I like them?”

This analysis is likely to leave a group of customers who are effectively not profitable to service, even though at some point they probably were. They have done business in the past but for whatever reason they are not active now.


So what to do with this group? If they aren’t getting ongoing service, it’ll be difficult to ever spot their changing circumstances and establish whether they are now profitable to service again. Add to this the fact that many may have moved, divorced or died, and the practice has not been advised.

Technology Triumphs

But all is not lost. The technology and data insights available now allow firms the ability to profile and cleanse their client data in a more objective way. This insight enables firms to more easily identify the ‘hidden gems’ in their client bank that can generate additional value.

If a firm has identified its profitable clients, I would suggest a simple exercise of profiling them using an external wealth scoring model. This then provides an objective reference or ‘label’ that can be used to determine other ‘non-active’ individuals within the client bank that, in all respects, look like the most profitable clients. 


This gives a means of executing a strategy to win back value from these ‘hidden gems’.

At the same time it is very simple to cleanse data to understand which clients are now deceased or have moved, as well as append new addresses for those who have moved.

Missed Opportunities

I can cite a real example that proves the value of this approach: a client who invested in a small PEP in 1996 with a current value of £9000. The IFA was still receiving trail but had not been in contact with the client who has since moved twice and divorced. Yet this client had investable assets today of more than £250,000 sitting on an unadvised Investment Platform.


A quick and simple profile and cleanse of this IFA’s data would have established this client’s current address and identified him as someone with a high likelihood of being an “experienced investor” with “early retired wealth”. I’m convinced that most IFAs would have little difficulty educating this client as to the benefits of their fully advised service.

These types of opportunities are missed by firms because, traditionally, the only way to find such clients would be to trace and contact all ‘orphans’. This clearly isn’t cost effective, as it’s a bit like looking for a needle in a haystack. Using intelligent data cleansing and segmentation means a firm can do the equivalent of holding a large magnet near the haystack and letting the needles come to it. 

Cash In The Attic

Returning to the unloved household items analogy, one way to establish their true value would be to check them all on eBay to see what similar pieces have sold for. Thankfully with client data it’s much less time consuming than that. If a firm can provide an excel file of the names, addresses and postcodes of their clients, a marketing and data analytics specialist can easily cleanse and enhance that data as well as place a wealth score or wealth indicator against each client record.

This allows a firm to make a judgement about what contact strategy to adopt for various client segments ranging from adding contact details to a newsletter mailing list to a personal letter or phone call from the original adviser or another relevant specialist suggesting a review meeting. Sometimes a change of adviser within the same firm can be the key to rekindling a dormant client relationship.

In the post-RDR world the firms that will thrive are those that adopt best practices used across a range of industries and adapt them to suit their own business needs. In my experience, IFAs have only started to scratch the surface as far as managing customer data and segmentation is concerned.

This seems ironic, as the future competition to this sector will come from those businesses that, at their core, use data and the insight it provides to better predict consumer behaviour to spot the ‘hidden gems’ first.


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