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CPD: Client centric segmentation – a best practice framework for advisers

This Best Practice CPD series is published by AdviserVoice and sponsored by Bennelong Funds Management.


Extensive research into the underlying pillars of success for financial advice businesses has identified the use of client segmentation strategies as a powerful driver of best practice.

Simplistically we can think of segmentation as dividing clients – and prospective/target clients – into smaller groups, and then optimising the way you interact with those groups, including:

  • the resources you allocate to them
  • the product and service proposition you offer them
  • the fees you charge them; and
  • the way you communicate with them.

Viewed this way, segmentation can be seen to be about both efficiency and personalisation, two diametrically opposed concepts.

In a perfect world every customer would be treated differently, receiving their own bespoke service, paying individually negotiated fees, and enjoying tailored one to one communication. However, such an approach is not economically viable for most businesses, and efficiency and personalisation need to be traded off and balanced out.

Adopting a contemporary, client centric approach to client segmentation enables this trade off to be achieved in a way that better aligns the service offering with client needs, thus driving both practice efficiency and customer satisfaction, and in turn creating a platform for more enduring relationships and a more sustainable business.

Segmentation drives practice profitability

From a financial advice perspective, there are compelling reasons to apply a segmented approach to both your existing clients and those clients/markets you wish to pursue.

Studies of Australian advice practices, conducted by Business Health, have found those that have an effective client segmentation model are – on average – over 140% more profitable than their non-segmenting peers.

Similarly, a study of advice client communication preferences found those firms that tailored their communication channels and frequencies to the preferences of their clients achieved significantly higher levels of satisfaction.

Considering this strong and consistent evidence of the quantitative benefits of segmenting clients and markets, it is therefore surprising that so many advice practices still haven’t embedded such an approach into their business strategy, with various studies suggesting anything from a quarter[4] to a third[5] of Australian advice firms don’t have a formal segmentation strategy.

Unpacking the benefits of a segmentation strategy

The positive profitability impacts of segmentation are an outcome of the way other business functions and drivers benefit from a segmented approach.

Understanding client economics is more valuable at a segmented level

Whilst the 80/20 rule of thumb may be a lazy – and possibly inaccurate – basis for strategic decision making, the idea that a small group of clients is disproportionately contributing to the profitability of your business seems like a safe bet. Understanding the cost to serve and the revenue generated by different clients is one of the key planks in a successful segmentation strategy, as it informs the way you strike that optimal balance between resources, fees, and services.

Whilst understanding the cost to serve at an individual client level doesn’t require segmentation, dividing your clients into segments and then analysing the economics of each segment makes that data much more meaningful and actionable.

Improving client engagement

Different segments have different needs, attitudes, and preferences. Showing that you understand these differences is, in itself, likely to improve your client relationships. Tailoring your engagement based on that understanding will take the strength of your client relationships to another level.

Maximising efficiency of both retention and acquisition

There are two ways a segmented approach can drive efficiency in both acquisition and retention activities.

  • Scale benefits: notwithstanding the fact that financial advice is based on deep, enduring relationships, not everyone needs, nor wants, the same level of personal attention. For most practices, some level of scaled up, ‘one to many’ activities becomes necessary when retaining existing clients and seeking new ones – client groupings enable such an approach.
  • Focus on desirable clients: understanding the economics across different segments helps you understand which clients you can afford to lose, and which ones are worth pursuing. The time and effort you put into each of these activities can therefore be adjusted accordingly.

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