On an almost daily basis, I get asked by my financial advisory, wealth management and tax advisory clients how to better structure and organize their clients. These questions are asked for a multitude of critical reasons:
The firm has grown without much focus on the types of clients it has accumulated, and now every client is expecting the same type of royal treatment and service level. While in theory this sounds very loyal and giving to all your clients, with two finite resources - time and labor - it’s utterly impossible to provide the same service quality to all your clients. Read our article in RIABiz about the challenges of doing all things for all people; something is bound to break! But how do you choose who gets more of your time, pays more fees, etc?
Some advisory clients have gone into “cruise control” and may not require the same level of service as those transitioning out of a job, retiring, going through a divorce or more. The latter requires a lot more hand-holding, advice and number crunching. So should the hands-off clients be charged the same way your more “needy” clients are charged [read our article about various advisory fee structures]?
An RIA asks us: Should we focus on younger clients who have a lot more upside through wealth accumulation, or older ones who have been with us the longest but are in withdrawal mode?
A wirehouse team asks: Should we categorize our clients based on who is most “needy” and calls in most, and allocate our resources accordingly?
A tax practice asks: Should we just tier our clients by how much they pay us? If so, sometimes the ones who pay the most require the least amount of our time!
An investment management firm asks: How should we charge for our various service levels? For example, investment-only, comprehensive with full estate advisory, even concierge services [make sure to read our article on fee structures for various services]?
Many firms are looking to triple in size over the next five years; how will that be possible and feasible given the amount of high-touch service hundreds of clients are expecting on an almost weekly basis (or seeing your team “on call”) without having to keep hiring and training new staff?
As you can see, all these questions can drive an advisory practice into mayhem and cut into business development and growth efforts if not addressed as soon as possible.
While we obviously would love to serve every client the same way, unfortunately, unless we are a non-profit, we have to take serious consideration to our limitations, including our time, our team’s capacity, labor inflation and our growth ambitions.
One way to approach this complexity and help your firm become better organized as to the service level, pricing and “dividing and conquering” is through the big buzzword these days called “Client Segmentation.”
But…in the world of holistic financial and tax planning, how do we divide clients into segments while still upholding our commitments and legal obligations around stewardship?
It's likely your firm is already doing at least a limited amount of client segmentation based on assets under management (AUM) or revenue. This is the most common way advisory firms tend to naturally segment their clients. We see advisory firms have Silver (smallest 20% of clients), Gold (middle 70% of clients), Platinum (top 10% of clients) levels in their CRM systems to organize their clients.
However, there are many limitations and missed opportunities with this simplified division of clients purely on asset and revenue size. For example:
What happens if a client is small now but works at a startup where he could make it big? Do we treat him like a Silver or a Platinum client? If Silver now, could we risk losing him if he hits it big and wasn’t happy with what he hasn’t been receiving? Some of the biggest RIA’s in the nation right now are those who started their career in Silicon Valley in the late 90’s and early 2000’s, befriending young startup founders who are now billionaires. On the other end of the coin, what if we treat this young founder (a Silver) like a Platinum client now, hoping he makes it big, but his company never takes off and never even meets our minimum account size? That’s got to be an awkward conversation.
What are the service and treatment distinctions between the various asset and revenue sizes in this segmentation structure? What does one receive versus the other? Is it that the Silver client gets less of your team’s time and advice? Time and time again we've seen this is hard to achieve: The smaller clients sometimes are the most time-consuming or “nervous nelly’s.” Is it fair to divide up clients by assets/revenue if the smaller ones could use more of your financial planning, retirement advisory services and hand-holding, advice you LOVE giving?
Do clients know BEFORE they sign up what category they will be “placed in” so expectations are managed and aligned? What if you get a “nervous nelly” client who signs up hoping for your advice and fits in your “Silver” category, but isn’t aware she will be categorized into this service level given it’s not really discussed ahead of time? Does she know that in this service level you most likely don’t have the time to talk to her daily or call her back quickly?
Given this numbers-only division, how do we know who is our Ideal Client based on other factors beyond size? What if we are providing the highest level of service to a large client who isn’t engaged in our process and only views us as a “Money Manager” she can judge quarterly? Is this separation by asset size helping us build out out a community of our ideal clients and focused on giving the ENTIRE experience to those who appreciate it, regardless of the size?
As you can see, segmenting clients by size may not be providing you the full solution to what your ultimate business goals are.
Understanding how to segment groups of clients based on various factors (above and beyond AUM and revenue) can provide a major boost to efficiency given that your resources and efforts become better aligned with clients’ true needs, and ultimately your overall business goals.
At its base, Segmentation simply means aligning groups of clients to the appropriate levels of service and firm commitment in order to more efficiently run your business.
There are several approaches you might consider in order to narrow the types of communications, strategies, and services you offer your various segments.
Below we have listed just five methods, but we have worked with our clients on building truly customized Segmentation Levels to be in line with where they are today, and where they want to go.
Before reading further, as always please note we are not compliance officers or legal advisors, so please be sure to run these ideas by your legal and compliance teams to ensure they can be instituted within your guidelines.
Below are just FIVE possible ways to segment your client base for more scalable and efficient ways to run your practice
1) Life Stage and Age
Your clients likely fall in a span of age groups over several generations. Typically, those age groups correspond to different parts of the financial journey.
You may have one group of clients in their fifties or sixties, gearing up for retirement and in need of your advanced planning and retirement services in order to best position themselves for life after work, legacy planning and philanthropy. These folks probably require the most amount of planning and hand-holding as they prepare for a new life stage. They may also fall into your ideal client profile. Therefore, you may want to customize a service model just for this segment: How many calls will they receive, what will the journey together look like, will you charge a different fee during this stage given the level of complexity? What will this model be called? Who will it attract?
These are all questions we can help you answer.
Another segment of clients may be those who are in their thirties and forties (or younger) and just getting started investing toward their long-term financial goals. These folks may not require a lot of your time. But they want to be with you and have you help them. Rather than assign an entire team to these folks, how about onboarding them to a more virtual model, in which they receive monthly videos, blogs and quarterly events? These are all items an Outsourced Chief Marketing Officer [read about our Outsourced Chief Marketing Officer program] can help you with.
What if your older clients have younger children? Do you divide up the family into various segments?
Our recommendation is YES. Time after time, we have seen the new generation leave their advisor as soon as the parents unfortunately pass. Why? Because they didn’t want their “granny” service model. Therefore, it’s important from the very beginning to give the new generation (the younger folks) the type of service that feels like their own.
You can see how even this amount of segmentation draws clear lines in terms of services and products you might recommend, as well as who within your team may be best to serve various clients.
2) Scope of Service
Another way to think about segmenting your clients is based on the level of high-touch services provided.
On the lower end of that scale, you may have clients that simply want advice, a basic cash flow analysis, and a likely virtual, yearly touch-base.
At the other end of the spectrum, you have your wealthier clients who not only represent a sizable portion of firm revenue, but also require more firm resources given the complexity of their financial lives. These clients expect specialized financial modeling, including hedge funds, environmental, social, and governance investments, and generational planning. Segmenting clients in this way helps to determine the overall number of clients your firm can handle at various service scopes given present staffing levels.
It can also help you model revenue projections and more efficiently plan for the future of your business.
How will you know which service model to provide to each?
This begins with having a very robust discovery and onboarding process. At Select Advisors, we’ve helped many advisory firms put together their own white labeled onboarding assessment that helps the team know in advance and from the beginning of the engagement which service model to offer to a client and how to charge. Learn more about having various service models here.
3) Hours Set Aside
Similar to retailers and any other type of business with tangible products, Financial Advisory and Tax Firm have “Inventory”. While for retailers and other tangible producers the inventory is sitting on their shelves, for consultants and advisors, their “Inventory” is their Collective Staff Time (CST): The amount of collective hours the firm has between all its staff members to provide its advice, expertise and resources directly to its clients. Just like a retailer, you have to maximize and efficiently manage your Inventory (aka your time) with the number of clients you have (and plan on adding).
[To the contrary, technology firms do not have an “Inventory.” Technically, they can handle a client size in the millions or billions. CST can also be increased when the firm outsources some of its tasks, such as Marketing (read about our Outsourced CMO Services or Compliance.]
One way to segment your clients can be done by allocating specific hours to them. These would be the hours that you expect to allocate to them for meetings, preparations and paperwork, number crunching, budgeting, etc. This can be structured based on the size of the client and the future potential of the account. The larger, more complex clients can be granted more hours of your CST. Even if the client does not embrace all the hours allocated to them, it’s important to have “set aside” hours for those clients so you and your team are not spending your precious hours servicing the most time-consuming clients. Those “Set Aside” hours can be used more for business development and marketing. This is really no different than a law firm structure. The highest revenue comes from the clients with the most billing hours.
What happens if a client with few hours wants more of your time? This can be a great revenue-enhancement opportunity to start charging “Overage” costs. Lawyers don’t feel bad doing so; why should you?
4) Psychographics
One option is to segment your clients based on data about their personalities. Client beliefs and values, their attitude, their lifestyle, and their interests would all be considered psychographics.
While these are harder to quantify, grouping clients into these segments could offer a more efficient way to organize sets of services based on the likely goals of that group.
Some may be more lifestyle and experience-oriented, choosing to invest in products that improve their cash flow and fund their interests. Others may be more conservative and would be grouped with similar clients interested in lower-risk, long-term types of investments.
This type of segmentation can also help you determine which groups may be interested in or open to discussions around investments like ESGs, or charitable donations. After all, you wouldn’t want to waste your or the client’s time going down a path they have no interest in.
How can you segment your clients in this manner? Our firm has teamed up with Harrison Assessment and helps us build out a Client Psychodemographic Assessment. Contact us to learn more about this.
5) Referral likelihood
Referrals are a critical way that most advisors find new business. Clients who are very satisfied with your services are more likely to refer friends, family, and colleagues. That loyalty makes them an extremely valuable asset to your business. Some of your clients may be satisfied with your service, but aren’t motivated to refer you new business. This is where the opportunity for this kind of segmentation is apparent.
By understanding your clients’ satisfaction levels through annual Net Promoter Scores, can you focus on those clients who could become promoters or advocates for your firm, leading to more referrals and associated growth.
Read more about Net Promoter Score here.
While we don’t want to charge differently or charge these clients a separate fee for compliance purposes, we may want to offer them more frequent touch points and marketing collateral to stay on their radar. We may want to offer them more meetings, luncheons, and events, viewing them almost as your board of directors.
As you can see, there are so many approaches to segmenting your clients. That being said, it is not a simple process. If not fully thought-out and smoothly rolled out, it can have a damaging impact on your clients, prospects and team.
Having a partner like Select Advisors guide and consult you through the process can help you come out with a segmentation solution that you truly feel confident in and can help you and your firm reach its goals much faster.
Not only can we help you embrace a new Segmentation plan you and your entire team are fully behind, but we can also help you communicate this new structure to your existing clients and future prospects. Communication will be key to not cause frustration, inefficiency and wrong expectations down the line!
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