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Front Line Advisers Should Be in Charge of Client Segmentation

Profitability is hard to come by in the wealth management industry right now, and client segmentation is a good way to improve matters; however, front line staff should be consulted throughout the process

Wealth management firms have found that the cost of serving clients has risen steadily across the past few years which, among other things, means of course that their profitability takes a hit.

One way to address this is to revamp how firms segment their clients into different groups, and then to tailor products and services to meet common client needs – which boosts efficiency – and make sure clients are getting a level of service they value (i.e., if they’d be prepared to pay more for better service then they are given that option).

In fact, more than two-thirds of wealth management executives report that “defining and implementing a client segmentation strategy” has been one of their top priorities for 2017. But few executives are satisfied with the results to date: only one-third say that their client segmentation strategy leads to more profitable relationships.

Executives face a number of challenges in their attempts to refine — or redefine — their client segmentation: determining what segments to target, getting the right insight on those segments, securing advisor buy-in to their new strategy, communicating changes to clients, and so on. Whatever the challenge may be, firms can position themselves for success by actively involving their greatest asset — frontline staff and their expertise – throughout the process.

A Three Step Plan

Some of the world’s leading wealth management firms have used their front line employees’ knowledge of the market to develop segmentation strategies and then equip advisors with the resources to implement these strategies consistently.  One example comes from a progressive firm in CEB’s networks that we dubbed Carmichael Bank as a pseudonym.

Realizing that home office analysis of its client data did not yield the best guidance for creating segments, Carmichael recruited its highest-performing advisors and specialists to help define the best segments. There were three parts to the process.

  1. Present potential segmentation models to the front line and solicit their feedback through focus groups: The bank presented four pre-selected segmentation models to focus groups of advisors and specialists. The groups evaluated the models based on their relevance and ease of implementation and presented their view to other groups and management.

    The advisors and specialists then voted on which segmentation model they prefer, and the bank selected the model based on this feedback. The firm then continues to solicit front line feedback as they refine and sharpen the chosen model (see chart 1).


    Chart 1: Segment creation workshops  Illustrative  Source: CEB analysis


  2. Use advisor profiling to match advisors to specific segments: Upon determining its new segments, Carmichael Bank realizes that serving each segment requires a specific set of advisor characteristics. To match advisors with segments, Carmichael first determined the advisor attributes required to serve each segment successfully.

    After identifying the ideal attributes for serving each segment, Carmichael’s advisors completed a questionnaire designed to match them with the segment best suited to them.

  3. Establish a staged and structured client migration process to minimize disruption. Recognizing that the client migration process can be disruptive to not only clients but also advisors, the firm allows advisors to have a lot of control over the migration process.

    While each advisor is given responsibility to manage the transition of his or her own book, the firm provides guidelines as well as supporting materials, including scripting. Moreover, the firm carefully monitors book sizes to ensure that no advisor is taking on too many (or too few) clients as result of the re-segmentation.

Following implementation of its new segmentation strategy, the firm experienced growth not only in new clients but also in the depth of client relationships. This resulted in significantly higher operating profits.

 

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