If autumn is conference season, then summer is roadshow time - a lighter way for firms to discuss the latest issues locally, update their knowledge, and touch base with the community.
So with this in mind, this summer myself and members of the Nucleus business development team took client segmentation on the road via a series of workshops across the north of England.
As you’ll know, client segmentation has been pushed up the regulatory agenda by the product governance (PROD) rules, which require you to show how the products and services you offer match the clients you offer them to.
Although many firms are already in the process of segmenting their clients based on factors other than ‘value’, we sensed that many would appreciate guidance on how they could approach it, and on how they could make it more than just a ‘tick box’ exercise for the regulator.
So we began by asking what stage people were at: from ‘red’ meaning they haven’t started, to ‘yellow’ meaning they were halfway through, to ‘green’ meaning they were all good and just there for the free bacon rolls.
Most people were at the ‘yellow’ stage, with a few at ‘red’ and none at ‘green’.
We discussed the different ways people are tackling client segmentation and what they’re coming up against. What was fascinating was seeing the discoveries people are making about their businesses as they do it.
Too many segments
Of the people who have started or who are midway through the process, many feel they have an overwhelming number of segments and are struggling with narrowing them down.
This is difficult but important.
Segmentation that’s too detailed will become a hindrance rather than a help.
I would suggest no more than three segments, and that these are best defined via life stages such as ‘young accumulators’, ‘approaching retirement’ and ‘enjoying retirement’.
You might say that’s not very specific. But within those broad groups you can be much more detailed in terms of a client's personality, investment knowledge, behaviour, communication preferences, goals and objectives and previous experience of using advisers.
This allows you to build up a picture of three ‘typical’ clients that shows how your products and solutions match their needs in three different, very detailed ways.
But there’s something else that helps to simplify this challenge, and that’s to really consider who your ideal client is.
Profit doesn’t always equal pleasure
We considered the following three questions:
- Who do you love working with?
- Who is most profitable?
- What business would you like to do more of?
Answering these helps to see the direction you’d like your business to move forward in. Who you prefer to do business with isn’t always necessarily those who bring in the most moolah.
One discussion centred on how it can actually be less satisfying to work with ultra high-net-worth clients because they’re often not as engaged in the financial planning process.
Perhaps it’s something to do with the fact these clients might have a team of people working for them and advising them on separate aspects of their lives.
Unfortunately, this sometimes means the adviser feels as if they’re simply the ‘numbers’ person and not valued for what they really bring.
I wonder how many other people feel this?
We also discussed the pros and cons of being specific and of ‘niching down’.
Specialisation makes your firm more attractive than those offering general services to a broader audience. But is it risky?
I googled ‘niche marketing’ and found a perfect retail example. ‘Lefties’ is a company based in San Francisco that supplies gadgets for left-handed people.
Only 10 per cent of the population is left-handed, so if this was you, you might worry you’d be limiting your business’s potential.
But if you attempted to sell scissors, you’d be competing with everyone else. With left-handed scissors, you suddenly stand out, and probably make a killing.
For the adviser version of this, take a listen to Michael Kitces’ podcast Ep 118: ‘Passion prospecting to small business owners through a niche’.
Michael interviews Jared Reynolds who developed his advice business by working exclusively with bass fisherman.
This came from Jared's own love of bass fishing which enabled him to create a business he was passionate about, because he was able to turn his hobby into a prospecting activity.
It all comes back to the point about focusing first on clients who make you happy, and building your business around them.
The dangers of social media
Another issue we discussed was client communications, and we asked how many people were using social media.
As it turns out, not many. This is mainly because it’s seen as being too time consuming and confusing to navigate, especially when it’s not clear whether it will be beneficial.
Agreed: without a plan it’s likely to become an irritant rather than a good way of communicating the more ‘human’ aspect of your business (which it’s perfectly capable of doing too).
Without a plan, it could also get you in hot water. One example was given where an adviser’s partner had attended a Women in Business event where the entertainment was a group of male strippers.
Obvious issues of inappropriateness aside, the adviser quite rightly suggested no mention of the event should be made by any of the team on social media in case other mentions and images of it were inadvertently associated with it.
This was a real possibility and would have created a confusing and potentially harmful message.
So if you are going to be active on social, create a plan and include a policy on what you do and don’t post. This will ensure your content is always intentional and consistent rather than willy nilly (pardon the pun!).
We also discussed the other side of social – that it can provide a great opportunity to research your client before you work with them. Both in terms of building a picture of what kind of person they are, but also of being able to have a really engaging first meeting with them.
So in all, it was a lively few days of really intriguing debate.
The conclusion was that in most cases, the regulatory aspect of segmentation shouldn’t pose much of a challenge to good firms.
What's important is how you document it, not just to the regulator but also to your firm. This is especially true if you wish to use segmentation as a springboard for a more profitable and even more enjoyable business.