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Segment Badly and You Could Harm Your Own Practice

By Grace Williams July 31, 2017

Segmenting clients in a bid to streamline your business or to help provide better, more cost-effective service, is a laudable goal. But unless it’s done the right way, the results can spell disaster.

A new report released by SS&C and Advent Software, seems to indicate that for financial advisors, using the right technology to segment their clients is a sound way to “boost your firm’s operational efficiency and profitability.”

According to the report, the game has changed. And in addition to speed, a new spin on personalization is what clients currently prize. They want to be more than just a number or cog in your firm’s wheel. Similarly, gone are the days when word of mouth, or a great referral by someone in the know brought business to you. Clients can now review and rank their experiences while waiting in line for their morning java.

As such, the report says, getting to the heart of what makes clients tick and how to best serve them requires a new approach to an old practice. While it was once acceptable to simply classify clients by their assets under management or the revenue they generate, the paper argues, it’s time to get more personalized buckets.

Nowadays, a more productive approach to segmenting involves looking at a total picture when classifying clients. These more in-depth buckets include factors such as total wealth, risk profile, career status and their communication preferences. Also included on the list are demographics such as age, sex and family status.

Two advisors, Gerard Klingman and Doug Wells, say they segment clients to a degree. Klingman, who is president of New York, N.Y.-based Klingman & Associates, says in an interview with FA-IQ that segmentation often starts with a client’s assets under management, while other factors such as willingness to refer clients and centers of influence have heft.

Gerard Klingman

Klingman says the paper’s suggestions seem compelling, but they are hardly groundbreaking. He agrees that buckets matter, but when it comes to individual needs, the overall client experience is far more “lumpy” than linear.

According to Klingman, although clients may experience periods of time when they don’t need handholding or extra attention, they will still require some down the road. Klingman tracks factors such as the markets, life and career changes and moves as just a few of the unplanned events that can crop up in a client’s life, causing them to lean on you more.

Advisors might have “years where you’re overcompensating for some clients through periods where they don’t need a lot of extra attention and there’s not much happening in their lives,” says Klingman, whose firm has $1.51 billion in assets under management. However, changes in life or the market might cause them to “have to spend a significant amount of time with you.”

Wells, a partner at Albion Financial Group in Salt Lake City, Utah, says his firm foregoes being “all things to all people” and instead concentrates on building quality relationships. For example, about a decade ago, Wells says, firms took steps to become “one-stop shops” for clients by bringing services, such as attorneys and accountants, into the fold.

Albion decided that if it couldn’t bring in the best attorneys or accountants, it wasn’t profitable to add the services directly.

“What made sense though, is that if we can’t be the best at it, we are going to partner with others to ensure we do it,” says Wells, whose firm manages around one billion in assets. “We are willing to build the business in a less profitable manner in order to be able to provide services to the clients in the best way possible.”

One suggestion from the report that both Wells and Klingman agree on is the use of CRM software to create a more personal touch with clients. Both firms use their CRM systems to streamline their outreach efforts and stay on top of their work.

“Success brings a tendency to be reactive when client needs you,” admits Klingman. “When you’re starting out, you tend to be more proactive. CRM software helps us to be more proactive.”