Imagine if an international airline like Qantas applied the same price structure to its different service segments – first class, business, premium and economy. It makes no sense, does it?

Yet many financial advice businesses never get around to thinking about one of the biggest drivers of long-term profitability; the relationship between client segments, client services and pricing – or what I call ‘SSP’.

Certainly, plenty of Australian firms these days do segment clients into tiers (‘A’, ‘B’, and ‘C’ clients, or Platinum, Gold and Silver, if you like). Criteria can include revenue and profits per client, or number of referrals, or the ease of working with them.

The concept of categorisation is relatively straightforward. You want to improve the efficiency and profitability of the firm by appropriately matching the depth and level of services to each client’s value to the business.

The ‘A’ clients are those you want to service the most and who tend to drive the most profits for the firm. The ‘B’ clients are the bread-and-butter, while the ‘C’ clients are marginally profitable (if at all) and may have to be eased out if the firm is to grow.

A Three-Legged Stool

But even assuming you get client segmentation right, that still isn’t the end of it. What many firms forget is that SSP is a three-legged stool and without every one of the legs in place, the whole thing can fall over.

The fact is while client segmentation is certainly prevalent, there is surprisingly little written on how to differentiate tiers of service. And it’s easy to see why.

If financial planning is to be holistic, how do you apply higher and lower service tiers? For instance, a doctor who decides to provide only half a check-up for ‘C’ category patients could quickly be subjected to a malpractice suit. Likewise, most financial planners are reluctant to do a less-than-complete job for clients.

So you need to think about this systematically. Deconstruct your service offering. List which services are offered (and at what price point), who delivers them, and how they are delivered. Then decide what will be done for the respective client tiers.

For instance, one firm might opt to charge ‘C’ clients for planning services on an hourly as-needed basis, while providing the same services for a flat monthly or quarterly retainer for ‘A’ and ‘B’ clients. Another firm that charges AUM fees might charge separately for financial planning services for ‘B’ and ‘C’ clients (recognising that may limit how many clients use it), while including financial planning in the AUM fees for ‘A’ clients to encourage them to use and get value from the service.

Another way to segment client service – similar to how it is done in many other industries – is to base it on the experience of the staff doing the servicing. For instance, ‘C’ clients might be assigned to the firm’s newest advisers, ‘B’ clients might work primarily with one of senior staff planners, while ‘A’ clients may have access to a partner or senior adviser team.

Another option is perks. In other words, rather than focusing on what will not be done for C clients, you might focus on what else you can do for A clients – recognising that perks can help client retention and driver referrals at all tiers of the practice.

Ultimately, the firm should fully structure what it will offer for clients at various tiers. This is to ensure that the firm it is capable of delivering those services, that the client tiers are appropriately priced for the services provided, and that the solutions are consistent and can be effectively communicated to clients.

Advice is ready for this approach

Of course, none of this would be possible without the evolution of advice from commission and product-based price-taker models where the value of the advice was separated from pricing as defined by a third-party producer manufacturer.

In that model, the best that advisers could do was review the compensation they received from their clients, and then try to provide additional services to their biggest clients who paid the most according to their AUM or how big the commission was.

But now under the fee model, advisers who segment their clients can personalise their service, increase efficiency, generate faster growth and improve profitability.

The clarity around client tiers, services and pricing is what drives the success of large service industries such as hotels and airlines and there is no reason the same systematic approach cannot be used in financial advice businesses.

Consumers now expect a personalised, tiered marketplace, helped by the evolution of technology and the increase in transparency.

A step-by-step pathway

So here is a step-by-step pathway to segmenting clients, services and pricing:

  • Step 1: Thoughtfully define your goals

Are you looking to bring on new clients, or dedicate more resources to your current high-value customers? Once your goals have been defined, begin allocating your firm’s resources for more efficient growth. If you have smaller clients who are not a major source of revenue for your firm, consider bringing in a more junior adviser to manage those clients.

Think about profitability and efficiency. Make sure the design ensures that those who pay for a service get it, and don’t over service the ‘C’s.

  • Step 2: Create segments that support the client experience

Firms may decide to build tiered service levels using a scored stack ranking. This takes into consideration other factors like expected wealth trajectory, client location and likelihood of referrals. These tiers can help you prioritise requests, while managing your advisers’ time spent with each client

  • Step 3: Collect and analyse client data

Ask a marketer. Client data is the new oil. It allows you to more precisely target the segments of the market that best suit your offering, provide that segment with the best services, increase retention and drive referrals.

  • Step 4: Strategically transition clients

When it’s time to move clients into personalised segments, be sure to do so carefully for both clients and advisers. You may want to consider servicing ‘C’s on say a 1:500 ratio and ‘B’s at 1:100. Track profitability of each client, but also of the relationship manager point-guarding the relationships.

Think about ways of incentivising advisers to service ‘A’ clients, while disincentivising them from spending too much time on ‘C’s. You could (and should) include a minimum fee for all segments.

Consider unbundling your services. Instead of basing the plan on what you offer now, start with what prospects and clients want and develop unbundled services around that. Of course, you want ‘A’ clients paying an ‘A’ client fee but maybe there are some steps to get them there. It could start with articles, white papers and videos on your website.

Perhaps some of prospects want one-off, unbundled, paid advice. Maybe they are not ready to pay to be an ongoing client. Build that in.

  • Step 5: Help unprofitable clients exit

Unless you want to keep them pro-bono or subsidise them, don’t be afraid to let unprofitable clients go. Of course, this can be easier said than done. These clients often are among the most loyal. They may have been there before there were minimums and may be quite resentful if you try to move them on.

However, there are sensitive ways to do this. For instance, tell them it’s no longer necessary for them to work with you, because they’re ready to do it themselves (or with a more junior adviser). Or you can just set a higher minimum fee, so it’s their decision whether to stay. A third idea is to sell your smaller non-profitable clients.

The bottom line, though, is simply to recognize that financial advisers can only service so many clients. And a ‘C’ client who isn’t profitable for your firm could still be a great ‘B’ or ‘A’ client for another adviser or firm.

  • Step 6: The Netflix of advice

The final step might be offering access to your services via a membership or subscription model, which could include a range of service delivery methods – via Zoom, face-to-face advice, and online advice modules from a library.

This may seem far-fetched, but in the US some of the most successful and fastest-growing firms are now deploying the sort of algorithmic models that drive subscription services like Netflix.

Ultimately, the only way you will move from a practice to a business is to spend time on your SSP and get it right. And remember, it’s a continuum – the speed at which the market is moving, you will need to return to this program every 12-18 months.

Like a three-legged stool, if you get the design and structure right, you will have an indispensable tool that elevates your business.

David Haintz is founder and principal of business-to-business consultancy Global Adviser Alpha. He is a CFP and a past director of the Financial Planning Association of Australia (FPA), where he was instrumental in the push for professionalism. David has had a 26-year career with his own firm and subsequently became a founding director of Shadforth Financial Group. He departed Shadforth in 2015 and established Global Adviser Alpha.
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