As an important element of the research completed for Brokers Ireland on “The Evolution of the Broker Market 2030”, we identified 12 areas to be considered by Financial Brokers to help prepare your business for the changing market environment.
We now consider the next action identified, which sets out the importance of carrying out segmentation of your existing clients in a structured way. I wrote in a previous piece about the need for Financial Brokers to have different service propositions or service packages for different groups of clients. Higher value clients will expect a premium level of service and engagement, which will entail more time and cost inputs from the Financial Broker. At the same time, it will not be viable to deliver this premium service in a profitable way to all clients.
With their different service packages defined, Financial Brokers will need to segment their existing client base into the same number of segments, to ensure that every client receives an appropriate level of service.
Some Financial Brokers might previously have allocated clients to different segments simply based on their recollection of individual clients; however, this approach has some potential flaws. A structured segmentation exercise will usually expose these flaws, such as popular / very pleasant / over-demanding clients being allocated to too high a segment based solely on these characteristics and being over-serviced to a level that is unprofitable for the Broker. Likewise, high value clients who are never demanding or seeking meetings etc. may end up slipping off the radar and being allocated to a low segment, and then not being adequately interacted with. This of course runs the risk of another Broker attracting them away.
Another popular but flawed approach is to allocate clients to segments based only on asset values, treating high asset clients automatically as top tier clients and so on. The challenge with this approach is that it ignores a range of other factors that should be considered – the profitability of individual clients, their future potential, their access to other high value clients, their likeability etc. Each of these factors should play a part, albeit to different degrees, in determining the segment that a client belongs to.
The key to a successful segmentation exercise is to identify a range of factors that enables all clients to be scored. Once the factors are developed, they should be weighted appropriately, and a scoring mechanism devised. All clients are then scored and allocated to segments.
There will always be exceptions, but these should be kept to a minimum. For example, even where they have scored poorly, a Financial Broker might want to ‘promote’ family members or others who provide regular referrals to the business, in the interests of maintaining excellent relationships with these people.
A successful segmentation exercise will result in each client receiving an appropriate level of service.
Once the segmentation exercise has been completed in a structured manner, the next step is to communicate with your existing clients so that they understand the service level that will be provided into the future. This usually happens at the next review meeting.
Some clients might push back at the segment they are being allocated to. This usually happens where a client has been over-serviced in previous years, simply as a result of being very demanding. The challenge with these clients is that they are often unprofitable for your business. These clients must be listened to and shown a route to a higher service level – this may entail them increasing the assets they have under advice or increasing the level of trail commission on existing assets in return for the level of service that they desire. With actions such as these, the client becomes profitable to your business at a higher service level. Otherwise you need to consider, are these clients worth the very high effort involved for a relatively low return?
New clients will of course be relatively easily added to appropriate segments, as your different service levels can be explained during your initial engagements. Adding your existing clients to each segment will ensure that every single client receives an appropriate level of service.