Financial Client Segmentation | Financial Discussion

The debate over client segmentation in the financial services industry rages on, with some arguing it makes sense to divvy up one’s book based on how much money each client has invested – or has available for investing – while others claim such a dollar-based approach to managing one’s customer relations should be relegated to salespeople, not trusted advisors.

According to “Best-Managed Firms: Client Segmentation Strategies – Optimizing Client Experience and Firm Performance,” a report by Schwab Advisor Services, client segmentation is a win-win because it helps ensure that a firm is serving a diverse client base while building a more profitable and scalable business. Firms that say they find segmentation most useful typically have a more diverse client base and higher variable cost for the services they offer. Schwab also reports that formal segmentation strategies can help firms maintain an understanding of how much time they spend with their largest, most important clients, while helping determine which work should be advised to advisors or junior staff based on the size, importance, or complexity of a client’s needs.

Despite Schwab’s findings, there remain those who simply recoil at the suggestion of segmentation, rejecting it and branding it a failure. They argue that financial services are a “people business” and as such, should be focused on designing and delivering meaningful services. Rather than segmenting investors based on monetary value, they suggest classifying customers based on engagement. Specifically, they would like to see financial services clients segmented into four groups:

A-     Those who are profitable and engaged with the firm.

B-     Those who are profitable, but not fully engaged with the firm.

C-     Those who are not profitable, but are engaged with the firm.

D-    Those who are not profitable and are not engaged with the firm.

Obviously, the A group would command the most resources, while B would receive slightly less, C less still, and D would be let go altogether.

Understandably, there are many different approaches to segmentation. Others include by life stage, by behaviors and demographics, and by “discrete populations,” also known as cohorts (i.e. those who you have decided to track and/or interact with over time). The latter could consist of people who opened savings accounts during a specific time frame or who were found to have engaged in some other desirable, or high-value, behavior.

To engage in more in-depth discussions on client segmentation and other aspects of the financial services industry, contact Daley and Associates. We offer superior recruiting and placement results, specializing in auditing and financial placement.

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