Over the last five years, client segmentation has been decidedly en vogue. No matter which PD day you’d attend, you’d be bound to hear a familiar refrain: “segment your clients.”
Today, advisers are segmenting their client bases, which has gone some way to helping clarify the value of individual clients to the business. But there’s still more thinking around segmentation that will need to be done to ensure two important elements.
Firstly, segmentation needs to be turned on its head: rather than clients being segmented according to the value they present a business, segmenting should be based on the value that is provided to a client and their goals. Secondly, consideration should be given to how segmentation can be harnessed in the building of a five to ten-year business plan.
“This is especially critical in the current industry environment, where there’s a focus on customer fairness and outcomes and the added requirement to remove grandfathering of commissions,” explains Pina Sciarrone, AIA Australia’s Chief Retail Insurance Officer. “Industry product providers are already notifying customers that they can turn off fees if they feel that they’re not getting an ideal level of service. Clients are assessing the value of their advice fees in terms of what they’re getting for their money.”
Yet, while increased transparency and education around financial advice has had many benefits, it’s also created a level of ‘service normality’ for the customer, where what had previously been deemed value-for-service has now become the standard expectation.
But with such expectations being not always realistic or feasible, a wider appraisal of industry approaches to segmentation may be called for.
One of the traditional methods of segmentation is based on asset size, whereby the feasibility (and frequency) of ongoing client service is determined on the percentage of a portfolio being advised on. Flipping this mindset – from how much value a client brings you to what value you can give your client – allows one to deepen segmentation to tailor for specific client needs, goals and services through an enhanced focus on the delivery of programs, communications and solutions.
Sciarrone posits that sound financial planning means taking into account a whole range of customer considerations: how the customer would like to be communicated with, what their goals and desires are, where they are in their financial lifecycle, and how in-depth the advice they require will need to be.
“It’s about having a value proposition and philosophy in each sector of your business that a client can relate to” she says.
“About a client understanding the purpose of the advice they’re receiving and its relevance to them at every stage, with services and propositions bolted or unbolted to their financial program with a level of comfort.”
Evolving segmentation models within practices, Sciarrone continues, is an important foundation for future-proofing businesses, equipping an adviser to analyse their client sectors in determining new client opportunities and planning the future state of their businesses. “It’s about segmenting the business so that you’re always two steps ahead in regards to your clients’ needs, enabling you to build out their next five and ten years with ease.”
It also means analysing one’s client base and determining how their needs can be priced into services that demonstrate significant value to your clients – a process Sciarrone describes as a constant review cycle, rather than “an abrupt shift in gears.”
“The average advice firm usually has clients ten years either side of their advisers’ age,” she says. “So, if an adviser is 45 years old, they’ll typically have clients in the 35-55 age range; they’ll be finalising significant debt and thinking about building out programs for transitioning to retirement.”
“Advisers should be mapping out the value they can bring to their clients today, as well as looking at what programs they might need to be delivered in five to ten years’ time. This could mean consultations around Centrelink, retirement and pensions, whatever will give them the time to build client value programs that align with the value proposition and philosophy pertaining to the client lifecycle.”
Crucially, building this planning out ahead of time enables a business to navigate the necessary changes required to support these programs, and demonstrates the added value for clients.
“When your business moves into financial programs that support the needs of your older generation, it builds out a strong intergenerational referral program” adds Sciarrone. “This in turn serves to start your business evolution again, allowing your business to show ongoing value.”
In light of the extent and pace of change currently prevalent in the industry, exploring the ways in which advisers can utilise segmentation to both manage costs and demonstrate value to their clients might not only be fruitful – it could be critical.
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