Client segmentation has become increasingly important with Consumer Duty creating a greater focus on client outcomes. As such, implementing effective client segmentation has become a linchpin for success. By categorising clients based on various criteria such as demographics, behaviours and financial objectives, financial advisers can tailor their services more effectively, enhancing efficiency and client outcomes in addition to staying compliant with Consumer Duty rules.
Understanding Client Segmentation
What is it?
Client segmentation is a strategic process where financial advisers categorise their clients based on various criteria such as demographics like age, relationship status and job status or behaviours and financial needs to optimise service delivery and enhance client relationships. This segmentation not only allows for a deeper understanding of the individual’s needs, but it also aids in tailoring communication and services to fit each unique client group.
There is not an exhaustive list of segmentations and generally, the more clients that you have, the more diverse your clients will be, and as such, you are likely to have a greater range of segments.
The importance of client segmentation
Implementing effective client segmentation can also significantly improve the scalability and efficiency of financial advisor firms. By understanding the specific expectations and needs of each segment, advisers can align their services more precisely, ensuring that resources are utilised most effectively, and client satisfaction is maximised.
Historically, segmentation was usually done based on asset value however, that doesn’t always provide a tailored approach. Below is an example of 4 clients all with £750k in assets.
- 26-year-old who has just inherited £750k.
- 45-year-old who has sold their business for £750k.
- 60-year-old who is looking to retire and their pension is worth £750k.
- 85-year-old who has £750k in investments and is thinking about their estate planning.
All these clients have the same amount in assets; however, they are in very different stages of life and therefore the advice that you would provide to them would be very different. This highlights the problem with segmenting clients purely based on asset value and emphasises a need to segment your clients more specifically. But how do you do that?
Stages of life
One way of segmenting clients is based on where they are in life. The below image shows the different life planning stages in terms of wealth. Each firm is different, and you may not have clients in each of these stages, however, generally, most firms will have younger clients who are saving for the future and those who are close to or in retirement.
These segments aren’t set in stone, and you may have more or less segments, but the idea is that in line with Consumer Duty, customers will receive the products and services that meet their needs in terms of their stage of life, rather than their asset value. For example, younger clients who are entering the workforce may have a more adventurous approach to investments, whereas a client who is in their early retirement years may adopt a more reserved approach.
Behavioural segmentation
Behavioural segmentation dives deeper into the individual by analysing client behaviours, such as risk tolerance and engagement levels. This strategy segments clients based on their interactions with your services, allowing for personalised marketing and service strategies. It's particularly effective for tailoring offerings to client needs during different stages of their wealth accumulation journey, from awareness to decision-making. Utilising behavioural data enhances personalisation and can help you to predict future client behaviours, thereby optimising the clients’ savings journey.
For example, advisors can select portfolios based on clients’ risk tolerance and investment time frame offering more conservative options for risk-averse clients and more aggressive options for those with higher risk tolerance. High engagement clients might receive regular updates, detailed reports, and invitations to exclusive events, while less engaged clients might receive essential information in a more concise format.
Focusing on needs and vulnerability
It is possible to segment clients based upon their financial literacy and the complexity of their financial situation. Someone needing basic retirement planning will have different needs than someone with a complex estate. You can segment your clients by identifying certain characteristics that make them typically more vulnerable, such as being elderly, being inexperienced investors or having health issues as these types of clients may require additional support and communication.
A key aspect of your investment proposition
Client segmentation has become increasingly important because of Consumer Duty creating an even greater focus on understanding your client groups and the services you want to deliver for those clients. Client segmentation is the starting point and the most important aspect of the entire proposition. Below are some points you need to consider:
1. What are the common circumstances, needs, and goals of those clients?
2. Ideally, work on life stages, because that's all about where they are in life, their planning needs, and requirements, and then the recommended products and services that align to that.
3. Do your clients have complex or simple needs?Remember, segmentation shouldn't exclude clients from accessing suitable financial advice. Client needs and circumstances change; therefore, segmentation should be reviewed regularly.
Regularly assess the effectiveness of your segmentation strategy by monitoring key performance indicators such as client engagement and satisfaction levels. You can then adjust your strategies based on these insights to better meet the evolving needs of your clients and ensure sustained business growth.
If you are looking to join a network that offers tailored support in not only creating but maintaining your CIP so that you can provide the best advice for clients, discover our Network Services & Benefits Brochure and get in touch today for an initial conversation.
