Executive Summary
The importance of segmenting clients into different tiers (e.g., A, B, and C clients) has long been discussed in the industry, along with different ways to segment those clients on criteria ranging from revenue and profits to referrals and the ease of working with them. The concept is relatively straightforward: to improve the efficiency and profitability of the firm by appropriately matching the depth and level of services to the client’s value to the firm.
Yet despite the prevalence of the advice to segment clients, there is remarkably little written about how exactly to differentiate those tiers of service. After all, if financial planning is “holistic” by nature, it’s not exactly conducive to higher and lower service tiers. A doctor that just does “half a check-up” for C patients would be guilty of malpractice, and for many financial planners there is concern of similar risks to do a less-than-complete job for clients!
Nonetheless, the reality is that there are ways to effectively segment clients, without giving bad or “incomplete” advice – either by simply defining and limiting the scope of the engagement in the first place, adding more services or perks for top-tier clients (as opposed to “taking away” from bottom-tier clients), or just differentiating in how those services are delivered and how much additional support is provided along the way. In the end, we even look at a sample of what a segmented client service offering might look like when it’s all put together.
Client Segmentation Through Differing Service Levels And Advisor Delivery Model
When aiming to differentiate services across segmented client tiers – i.e., what will be done for “A” clients that won’t be done for “B” and “C” clients – the first opportunity is to vary what services are actually offered (and at what cost), who delivers them, and how they are delivered.
For instance, an advisory firm might charge “C” clients for financial planning services on an hourly as-needed basis, but provide financial planning for a flat (quarterly or monthly) ongoing retainer fee for “A” and “B” clients. Or a firm that charges AUM fees might charge separately for financial planning services for “B” and “C” clients (recognizing that may limit how many clients use it), but include financial planning in the AUM fees for “A” clients to encourage them to utilize the service (and get value from it).
Another way to segment client service – similar to how it is done in many other industries – is based on the experience level of the advisor (and/or operations staff) doing the servicing. For instance, “C” clients might work with the firm’s newest advisors (implicitly having less experience), “B” clients might work primarily with one of the firm’s more senior staff financial planners, but “A” clients can have access to a partner (in a larger advisory firm) and senior advisor team. Or “A” clients might be serviced by the most experienced member of the operations team, who provides a higher touch service, while “B” and “C” clients are served by a pooled operations staff member or team.
Along similar lines, firms can also differentiate across segments by limiting the scope of the financial plan engagement itself – for instance, “C” clients get an accumulation/decumulation plan and are referred out to an insurance agent and estate attorney (for insurance and estate assistance); “B” clients get a full comprehensive plan including a review of insurance policies and the current estate plan, along with tax planning support, and are then referred out to an insurance agent or estate attorney or accountant for implementation; and for “A” clients, the (senior) advisor will review all insurance, tax, and estate planning documents, along with P&C coverage, and go along with the client to the meetings with the insurance agents, estate attorney, and accountant to act as the central quarterback for the entire process.
For some firms, the segmented differentiation in service may come in how often the advisor meets with clients, and/or how meetings are done. For instance, “C” clients get 1 in-person review meeting and 1 (outbound) phone call per year, with email access with a 72-hour response time; “B” clients get 2 in-person review meetings, 4 (outbound) phone calls, and 24-hour email responses; and “A” clients get up to 4 in-person review meetings, monthly (outbound) phone calls, and unlimited telephone and same-day email responses on demand/as needed. Firms might also differentiate in how those “in-person” meetings happen; for instance, “B” and “C” clients might have meetings virtually (e.g., Skype or GoToMeeting) or in the advisor’s office, but for “A” clients the advisor will come to meet at the client’s (home or office) desired location.
Advisory Client Segmentation Using Client Perks
Beyond deep differences in client service levels and delivery, another way to look at segmenting clients is by providing forms of “perks” – in other words, rather than focusing on what will not be done for “C” clients, the point is to focus on what else can be done in addition for “A” clients (recognizing that some level of client perks can be a positive for improving retention and driving referrals at all tiers of the practice!).
For example, the firm might do an appreciation event for all clients in the form of a (relatively inexpensive) outdoor BBQ, but then do a second client appreciate event for “B” clients to a sporting event, and a third (more expensive) client appreciation event for “A” clients in the form of an intimate dinner gathering at a 5-star restaurant.
Or the firm might offer a “loyalty points” program for all clients with assets under management, but then also purchase identity theft protection for “B” clients, and a subscription to a premier magazine (e.g., Conde Nast Traveler for retired clients who like to travel, or the Robb Report) for “A” clients. The “A” and “B” clients might get some small perks like birthday or holiday cards, or celebrating milestones, that “C” clients would not.
Another way to differentiate amongst segmented clients might be special services tied more directly to financial planning issues. For instance, “B” clients might have access to discounted tax preparation services (negotiated with a local CPA firm), and for “A” clients the advisory firm might just include personal tax preparation for free (at least for personal tax returns) as part of their comprehensive services. Firms might also differentiate by offering “A” clients additional concierge services, such as assistance in buying a car or shopping for a vacation package, or offering access to a career counselor.
Creating A Segmented Service Schedule For Advisory Clients
Ultimately, the goal of the firm should be to fully structure exactly what will be offered for clients at various tiers, both to ensure that the firm has the capabilities to deliver those services, that the client tiers are appropriately priced for the services being provided, and simply so that the solutions are consistent and can be effectively communicated to clients.
So what does it all look like when the various perks, benefits, and services are brought together into single schedule of segmented service levels for clients? An example of a hypothetical schedule of segmented service levels for advisory firm clients is shown below.
(Click on the image below to view a larger version you can download and adapt for your own use!)
Clearly, different advisor firms may vary in the number of client tiers they segment, and some of the differences in services, delivery, and perks could further vary depending on the size of the firm, and the nature (or type of niche) of its clients, or simply what the firm feels it is capable of offering and delivering upon.
Nonetheless, the bottom line is that unless a firm really does serve a very narrow and consistent band of clients – which usually isn’t the case, simply given that most advisory firms accumulate clients of all different types in the early years as they grow – at some point it becomes necessary as a business to differentiate amongst those clients, to better align the cost and services provided to clients, based on the value that the client brings to the firm. And hopefully this is helpful food for thought about how those services, their delivery, and the associated perks, might differ across the client tiers!
So what do you think? Do you segment your advisory firm clients into tiers? How do you differentiate in the services, delivery, and perks offered to those clients? Are there other ways to differentiate amongst segmented client tiers that you have found to be effective? Are you considering whether to start segmenting clients now, using this list for ideas of how to segment the offering provided to them!? Please share your thoughts in the comments below!
What I have found that many advisors prefer to not segment by AUM or yearly client income, something that many other industries do. But prefer to segment based on
a) overall attributes: including shared values, AUM, services provides, touches given OR
b) services to touches… i.e. how often they’ll provide (calls to, reviews, emails, webinars (and other such touches) to each segement of their cliental based on services they provide.
However, it’s good to look at all your choices, as you list them, regarding creating a Client Segmentation Matrix — and be flexable. Usually that flexablity occurs, interestingly or not, in the “touches area”.. with some ideal clients (AAA, as I like to recommend the use of ratings from AAA to B) not wanting all the touches listed in their area of the matrix.
I’m charging a monthly fee that varies based on the amount of time I expect to spend with the client throughout the course of a year. The monthly fee for each client is based on how complicated I project that client’s planning will be. I use guidelines such as investable assets, income, and other factors that will require additional time to sort clients among three different monthly fee levels.
I’m just finishing my first year of this service (was exclusively hourly previously) and have been tracking my time for each client, so it will be eye-opening to find out how much time I have spent on each client vs my projection.