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.