Segmenting a client bank by service level

Aug 29
3 min read

Updated: 2 days ago

Introduction

A practice has three hundred clients. Every one is offered an annual review, the same reporting and the same availability, and every one pays a percentage charge. The largest client pays many times what the smallest does for an identical service.

Neither is well served by this. The small client is paying for a service they do not need and possibly cannot justify; the large one is receiving less than their fee warrants and is a target for any competitor who offers more. Uniform service across a varied book is a decision, and usually an unexamined one. Nobody chose it; it accumulated as the book grew and was never revisited.

1. Segmenting a client bank by service level matches what is delivered to what is charged

Start from the mismatch.

Where charges vary substantially and service does not, one group is subsidising another. Making that visible is uncomfortable and it is the beginning of every sensible decision about the book. Until the subsidy is visible, every option looks equally reasonable.

2. Segment by need and complexity, not only by assets

The better basis.

A client with modest assets and a complicated situation may require more than a larger, straightforward one. Segmenting purely by portfolio size produces a service model that fits the charging structure and not the work.

3. Define what each segment actually receives

Specific rather than aspirational.

Review frequency, who they deal with, reporting, availability and what is included. Vague service propositions cannot be delivered consistently or explained to a client, and they cannot be evidenced to a regulator either.

4. Make sure the lowest tier is genuinely served

The area of greatest risk.

Clients paying ongoing charges must receive an ongoing service, whatever segment they are in. A tier that exists to justify not contacting people is exactly the arrangement that attracts regulatory attention.

5. Consider whether some clients should be elsewhere

The honest conclusion in some cases.

Where a client cannot be served properly at a price that works for either party, a transactional arrangement or a referral to a more suitable firm may be the right answer. Doing this well protects the client and the practice.

6. Communicate changes carefully

The execution risk.

Being told you are in a lower service tier is unwelcome however it is phrased. Framing it around what each client actually needs, and giving genuine choice where possible, determines whether a restructure retains people or loses them.

7. Price each tier to work on its own

Not cross-subsidised.

Each segment should cover the cost of delivering its service. A tier that only functions because larger clients are overpaying is unstable, and it becomes visible the moment a large client examines the arrangement.

8. Review the segmentation annually

Clients move between tiers.

Circumstances change, assets grow, complexity increases and needs shift. A segmentation set once and never revisited misallocates service within a couple of years.

9. Check the model against your obligations

Ongoing suitability applies to everybody.

Whatever the tier, you retain responsibility for advice given and for the service being paid for. Confirm that the model as designed meets the requirements in your jurisdiction rather than assuming segmentation solves a capacity problem.

Model the effect before implementing it. Practices frequently find that a small proportion of clients produce most of the revenue and a large proportion consume most of the time, and the numbers make the decisions far easier than the discussion does.

Conclusion

Match the service delivered to the fee charged rather than serving a varied book identically.

Segment by need and complexity rather than assets alone, define specifically what each tier receives, make sure every client paying an ongoing charge is genuinely served, consider whether some clients belong in a different arrangement entirely, communicate changes around client need rather than firm efficiency, price each tier so it stands alone, review the segmentation annually as circumstances change, and check the model against your regulatory obligations.