Client segmentation, client insight and defining the proposition

Learning objectives:

  1. To understand segmentation and why it's important for your business
  2. Pension freedoms have opened up opportunities for clients
  3. To create appropriate propositions for each segment
  4. To be able to successfully segment your own client base

1. Improve client relationships with a consistent experience

Pension Freedoms has seen a move away from a model of one size fits all. Few advisory firms will serve a narrow band of clients - most firms will have accumulated clients of different types during their history (especially if they have been on the merger and acquisition trail). These individual clients will have different goals and objectives, and as such you may need to offer a range of CIP solutions to deal with them. The same logic applies to the retirement income equivalent of the CIP, the CRP. By running a number of investment solutions for different groups, it will help mitigate the risks expressed by the FCA (FG12/16) of a single proposition, which is unlikely to be suitable for everybody.

In addition, client segmentation is now a compliance requirement, particularly with MiFID II and PROD 3.3 in mind. You need to be clear around the categories of clients you have, what services and products are suitable for them, and also which clients they are not suitable for. It effectively puts into a rule the step of reviewing and assessing the client bank to demonstrate you are targeting services and investment solutions appropriately.

The question many firms now need to address is "How can we demonstrate we are providing appropriate services and investment solutions if we do not have an in-depth knowledge of who our clients are?". To date much of the segmentation carried out has been "firm focused" with the emphasis on client assets and client fees, rather than a more "consumer centric" approach.

This is where client insight and segmentation can really help you.

The challenge

Although clients will have different goals and objectives, there will be some areas of commonality. Client segmentation can provide the additional layer of insight that will allow you to split your client bank on a whole range of characteristics, from the client's net worth, the products they own, their age and "life-stage", to the type of service they require.

By running a number of CIP/ CRP solutions for different client groups, it will help to mitigate the risks expressed by the FCA of running a single proposition which is unlikely to be suitable for everybody. However, you should only use this as the basis for developing a strategy that fits with your firm's investment philosophy and approach, and your client bank.

If you get the segmentation right, it follows that you will offer more targeted and appropriate services and investment solutions. Which can only mean better outcomes for your clients, and for your business.