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The importance of knowing your customers

It’s rarely the case that one size fits all, and certainly not in the world of financial planning.

With so many different approaches to client segmentation, what’s the most practical way to help your clients and your business?

5 minute read

The case for client segmentation

Most financial adviser firms will have a variety of clients, and we all know that different clients have different needs, so it makes sense to segment into groups. Advisers can then tailor their proposition and service levels for each segment. This makes it easier to provide the most appropriate recommendations - ensuring the best outcomes for clients and for the financial adviser’s business.

A further reason to consider client segmentation is the increasing level of regulation around suitability. The FCA is clear that adviser firms with a diverse range of clients should consider doing this and the introduction of MiFID II legislation effectively means firms will have to put clients’ needs at the heart of their decision-making processes. Crucially, advisers need to be able to demonstrate the appropriateness of their recommendations, and client segments can provide a useful framework to do so.

Finding the right approach for you and your clients

There are various ways to segment clients, such as by their net wealth, their age or their life stage. It’s perhaps easiest to segment by wealth, but it doesn’t always follow that those with similar levels of wealth will have similar needs. Focusing on the life stage of clients instead will really keep their needs at the heart of the proposition advisers then deliver.

While some will be in the early stages of their financial planning journey and need straightforward savings solutions, others will be at a later life stage and may have accumulated substantial savings. Clearly the advice needs of these two segments will be very different – the younger group will have simple investment needs, while the other will be concerned with protecting as well as growing their wealth.

Other client groups will have different needs again. Some will be considering their retirement options or perhaps already be in retirement, and so advisers will need to consider income sustainability and possibly inheritance tax planning.

Boost your business with life stage segmentation

Segmentation can help you deliver the best outcomes and service for your clients; it can also help with business and resource planning by identifying those clients who need more extensive advice and more frequent reviews. As well as ensuring compliance with the rules, segmenting a client bank can help drive your business forward, improving efficiency and profitability.