While eight out of 10 of Schwab’s advisors segment their client book, most do so informally, without defining what the offering should be at each client level, said Scott Slater, managing director of the business consulting department at Charles Schwab Advisor Services at the firm’s Impact annual conference Thursday about client segmentation.

Slater’s advice? Carefully plan what level of service you can offer clients at anywhere between two to four levels of account size, and consistently deliver it.

Why segment?

The advice is based on a pattern that came to light in Schwab’s 2010 RIA benchmarking study, revealing on average that 65% of the firm’s smaller clients only account for 22% of its revenue. (Not too far off from the classic 80:20 rule that many businesses struggle with, even outside of the financial services industry.)

Client segmentation advice

In a matrix called the “client experience map” Scott showed three columns: service offerings, level (e.g. frequency) and delivery (i.e. ownership). When customized to a specific practice, this type of tool can be extremely helpful to a firm’s management, especially when it comes to allocating resources and “building scale into a service model.”

An example of the grid showed that top advisors within a firm, who are now typically servicing all types of clients, might be better serving just the A clients, or at least removing themselves from helping C clients all together. In the generic recommendation, a junior advisor would take on a bigger role with these smaller accounts. This is a key way to save the time of the principal of a firm by reallocating the relationship responsibilities of less profitable clients.

Although, it is likely this approach will save expenses driven by smaller clients, Scott suggested that “The top clients might need more service than they are currently getting.” This is likely true if the advisor is looking to replicate the best clients within a practice.

Benefits of segmenting clients

What Slater was trying to drive home to the packed room is that advisors need to have a better sense of profitability, doing analysis on client segments (and maybe even on a client-by-client basis).

Slater wrapped up his presentation with a few steps where advisors need to start:

  1. Revenue–know where it is coming from
  2. Service differentiation–map out the different levels of support offered and to which segments of clients
  3. Profitability by segment–begin to look at the average revenue versus costs per client segment

Advisors left the session with a better understanding of how they can analyze profitability, better client satisfaction and improve firm performance.
Mike Byrnes founded Byrnes Consulting to provide consulting services to help advisors become even more successful. His expertise is in business planning, marketing strategy, business development, client service and management effectiveness, along with several other areas. Read more at www.byrnesconsulting.com.