Client segmentation has been acknowledged for many years as an important strategy in managing a book of business efficiently. And as developments in technology can affect the way you serve and communicate with your clients, the fundamental objective of client segmentation has not changed: ensuring each client receives the appropriate level of service.

“Often [financial advisors have] looked at technology as the absolute solution,” says Ray Adamson, chief customer officer with BlueSun Inc. in Burlington, Ont.

But in reality, he says, for a practice to run efficiently, technology and a hands-on client-segmentation process must work together. You can use technology to monitor your client-contact process, but in order for your segmentation strategy to work, you first must assess and organize your clients.

Client segmentation is the division of your client base into tiers, with the aim of allocating your team’s resources in a way that is most efficient and profitable. The goal is to ensure that clients who, for whatever reason, warrant a higher level of service and more of your time are receiving that level of service. At the same time, segmentation helps prevent low-value clients from absorbing an inordinate amount of your team’s time and resources.

“Segmentation is at the core of almost everything in practice management,” says Julie Littlechild, founder of in Toronto. “If you think about the offer, the communication strategy, everything ties back to the value of the client. And segmentation is really about articulating the value of the client.”

Articulating that value means not only assessing each client, but identifying the attributes that make a client valuable to you. Below are some steps you can take to segment your client base in a way that benefits both your clients and your business:

Create service levels

An important step in implementing a client-segmentation strategy is to decide how your levels of service will vary from one segment to another.

Typically, as part of a segmentation process, clients are divided into tiers. Your top clients would be your “A” clients; the second tier of clients would be your “B” clients; and so on. Generally, advisors have three or four segments that clearly differ in the levels of services they receive.

You should have only as many segments as you have service levels, says April-Lynn Levitt, a coach with The Personal Coach in Oakville, Ont. “If you have only two service levels,” she says, “then have two segments of clients.”

Choose your “drivers”

Once the service levels are established, you can decide upon the criteria that you will use to determine which clients will go into each segment. Common traits – or “drivers,” as Littlechild calls them – that you can use to divide your clients include: asset level, revenue generated by the client, referrals generated by the client (which can be quantified in several ways [see below]), occupation and geography.

To identify the attributes of a top client, you must have a clear understanding of what is most important to you in client relationships.

Says Littlechild: “The first question advisors have to ask themselves is ‘What do I value in a relationship?'”

Levitt recommends a segmentation strategy called GAP, created by Wayne Cotton, founder of Cotton Systems Ltd. in Lake Country, B.C. GAP is an acronym for “growth, active and passive,” which represent three tiers into which clients can be divided.

“Growth” clients are individuals who are likely to increase their assets with you in the future through their own accounts or through referrals.

“Active” clients are those whose accounts bring in good revenue and to whom you would want to offer solid service – but aren’t necessarily growing their assets. This segment is likely to make up the bulk of your clients, Levitt says, and could include some high net-worth accounts and retired clients who are starting to draw down their assets.

“Passive” clients do not represent much opportunity for your bottom line, but they are people with whom you want to work for other reasons. Perhaps a client is a family member of a wealthy client or even a relative of yours.

Littlechild warns against using personality as a driver when segmenting clients. For example, you might move clients you find difficult to work with to a lower tier, while a client you enjoy working with is moved into a higher service level.

However, Littlechild says, you should treat personality as a “deal-breaker” rather than as a segmentation driver. In other words, if you don’t enjoy working with a certain client, why is he or she your client in the first place?

Consider the details

You must be clear about what a specific driver means before you use it to segment your clients.

What exactly do you mean if you say “referrals” are an attribute of “A” clients? Should you identify clients who simply give referrals, or clients who have given referrals within the past 12 months? Does this term identify clients who give referrals that become clients? Or does it mean a client provides quality referrals?

Clarity will help you to understand why a particular client is put into a certain tier. And clear definitions will help to ensure consistency in your segmentation.

Although your drivers should be clear and specific, they should not be too numerous. Try to limit yourself to three to five drivers. A shorter list of attributes helps you to create an identifiable group of clients.

Make the most of crm

After you have determined how you want to segment your clients, you can bring technology into the process. For example, Levitt says, with the service levels and contact preferences for each client segment established, your contact relationship management system can be set up to provide reminders of upcoming services – such as face-to-face meetings or a greeting card – for each group.

Hold virtual meetings

Virtual meeting technologies, such as Skype and GoToMeeting, now enable you to hold live meetings with your clients over the Internet. (See story on page 19.)

Virtual meetings could become an added service for busy “A” clients who don’t have time to meet with you in person. Virtual meetings can also save you time in meeting with clients in other tiers.

Update your information

A client-segmentation strategy should be reviewed annually to make sure clients are receiving the appropriate level of service. There are several ways to ensure you review your client segmentation regularly.

One option is to conduct an annual service audit of your business, in which you or members of your team review the services you provide to each client and determine whether that service level is appropriate. You might ask, for example: “Did every client who was supposed to have a meeting with me get one?”

Such an audit is a way for you to double-check the services your clients are receiving, Levitt says, and to make sure no clients are falling through the cracks – and thus being neglected.

Another option, Littlechild says, is simply to review each client’s account following his or her annual review. You then can decide whether the client still is receiving the correct service level or should be moved up or down a tier.

“A lot of advisors just don’t have that update process in place,” Littlechild says. “So, three years later, they find themselves saying, ‘OK, I guess I need to re-rate everybody.’ And that’s a lot of work.”

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