What Exactly Is Client Segmentation and How Can It Help You?

Client segmentation is a tool more and more financial advisors are using to increase profitability. This begs the question: what exactly is client segmentation, and how does it help you as an advisor?

With this in mind, we’ve put together a quick primer and LPL advisor Evan Harris of Whitefish, MT tells us how it’s transformed his practice.

Client Segmentation 101

Client segmentation is the process of determining which clients generate how much income. Looking at client revenue streams, how much time they take to service, and what kinds of services they receive from you are all important factors to think about. Apply to that the all-important caveat that it’s never just about data. Qualitative aspects also come into play. Evaluating special clients who may have been with your firm a long time, or have other considerations, also factor in. Having a partner to help you work through this matrix is important.

What’s the goal?

The ultimate objective of client segmentation is allocating your resources in a way that’s both constructive and profitable. Some clients may require a high level of handholding, but may not yield revenue commensurate with the amount of time you spend with them. Some clients could bring much more into your practice, if only you had more time to spend with them. Looking carefully at all the analytics, optics, revenue, and rationale in the data with an experienced expert is crucial.

Householding

Household profitability requires an even deeper level of review and analysis that LPL’s CFO Solutions offers. It segments and overlays revenue on top, using qualitative information and data to merge the two. This yields an even greater sense of your client base.

How to segment

There are many ways to segment your clients while continuing to offer unique services to each. You can map out different client-service levels based on how many meetings, phone calls, and other hands-on services your clients receive from you. You can also offer perks or loyalty programs to different levels of clients.

Evan’s experience with CFO Solutions

LPL advisor Evan Harris of Harris Financial Services in Whitefish, MT joined his father’s practice and needed to quickly get up to speed on all things financial – from cash flow projections and budgets to the profit and loss (P&L). What he didn’t anticipate was taking a deep look at who his clients were, and how the practice was servicing them.

According to Evan, the investment in CFO Solutions has been one of the best investments he could make. “The money I’ve spent on CFO Solutions has paid us back fivefold in the nine months I’ve been working with them, which is huge. The value I’ve gotten is significantly more than what I’ve paid into the program,” he said.