CPD: Client centric segmentation – a best practice framework for advisers


Client segmentation is a proven driver of best practice for financial advice practices.

Extensive research[1] into the underlying pillars of success for financial advice businesses has identified the use of client segmentation strategies as a powerful driver of best practice.

Simplistically we can think of segmentation as dividing clients – and prospective/target clients – into smaller groups, and then optimising the way you interact with those groups, including:

  • the resources you allocate to them
  • the product and service proposition you offer them
  • the fees you charge them; and
  • the way you communicate with them.

Viewed this way, segmentation can be seen to be about both efficiency and personalisation, two diametrically opposed concepts.

In a perfect world every customer would be treated differently, receiving their own bespoke service, paying individually negotiated fees, and enjoying tailored one to one communication. However, such an approach is not economically viable for most businesses, and efficiency and personalisation need to be traded off and balanced out.

Adopting a contemporary, client centric approach to client segmentation enables this trade off to be achieved in a way that better aligns the service offering with client needs, thus driving both practice efficiency and customer satisfaction, and in turn creating a platform for more enduring relationships and a more sustainable business.

Segmentation drives practice profitability

From a financial advice perspective, there are compelling reasons to apply a segmented approach to both your existing clients and those clients/markets you wish to pursue.

Studies of Australian advice practices, conducted by Business Health[2], have found those that have an effective client segmentation model are – on average – over 140% more profitable than their non-segmenting peers.

Similarly, a study of advice client communication preferences[3] found those firms that tailored their communication channels and frequencies to the preferences of their clients achieved significantly higher levels of satisfaction.

Considering this strong and consistent evidence of the quantitative benefits of segmenting clients and markets, it is therefore surprising that so many advice practices still haven’t embedded such an approach into their business strategy, with various studies suggesting anything from a quarter[4] to a third[5] of Australian advice firms don’t have a formal segmentation strategy.

Unpacking the benefits of a segmentation strategy

The positive profitability impacts of segmentation are an outcome of the way other business functions and drivers benefit from a segmented approach.

Understanding client economics is more valuable at a segmented level

Whilst the 80/20 rule of thumb may be a lazy – and possibly inaccurate – basis for strategic decision making, the idea that a small group of clients is disproportionately contributing to the profitability of your business seems like a safe bet. Understanding the cost to serve and the revenue generated by different clients is one of the key planks in a successful segmentation strategy, as it informs the way you strike that optimal balance between resources, fees, and services.

Whilst understanding the cost to serve at an individual client level doesn’t require segmentation, dividing your clients into segments and then analysing the economics of each segment makes that data much more meaningful and actionable.

Improving client engagement

Different segments have different needs, attitudes, and preferences. Showing that you understand these differences is, in itself, likely to improve your client relationships. Tailoring your engagement based on that understanding will take the strength of your client relationships to another level.

Maximising efficiency of both retention and acquisition

There are two ways a segmented approach can drive efficiency in both acquisition and retention activities.

  • Scale benefits: notwithstanding the fact that financial advice is based on deep, enduring relationships, not everyone needs, nor wants, the same level of personal attention. For most practices, some level of scaled up, ‘one to many’ activities becomes necessary when retaining existing clients and seeking new ones – client groupings enable such an approach.
  • Focus on desirable clients: understanding the economics across different segments helps you understand which clients you can afford to lose, and which ones are worth pursuing. The time and effort you put into each of these activities can therefore be adjusted accordingly.

Re-allocation of internal resources may free up capacity

Related to the point above, if you find yourself overservicing some clients, you may find reallocating resources within the practice frees up capacity – which enables you to take on more new clients.

More focused, effective, communication and marketing

If it seems obvious, it is. Targeting segments based on insights into their decision drivers and channel preferences, rather than a scattergun of messages and media, dramatically improves the return on investment for marketing activities.

The risks of not segmenting

Just as there are many benefits from implementing a segmentation strategy, there are, conversely, significant business risks in not segmenting clients.

  1. Devoting disproportionate amounts of time, effort, and resource to serving and seeking low profitability clients
  2. Compromising client relationships by not tailoring services and communication to their needs and preferences
  3. Missed opportunities to broaden share of wallet and deepen relationships by failing to offer clients relevant solutions.

How to segment your clients and markets

To be effective, segments should have, at minimum, the following traits:

  • Easy to identify
    This sounds obvious, but some more complex, attitudinal based segments can be challenging to identify without complex data and research, which can undermine the benefits of segmenting in the first place.
  • Differentiated
    The differences between segments must be substantial and meaningful, such that they can be shown to have different needs and preferences.
  • Measurable
    You can quantify differences between segments, across key business metrics such as revenue generated, assets held, and time spent interacting each year.
  • Accessible
    When segmenting for marketing purposes, understanding your target customers and being able to reach them are two different things. A segment’s characteristics and behaviour should help you identify the best places to find them (channel) and their decision drivers (message).
  • Substantial
    Segments that are too small are of no practical use.
  • Profit potential
    There must be a realistic possibility that you can design and deliver a fee and service proposition for that segment that can make it profitable.

Segmentation methodologies

From internally driven (e.g. client revenue) to commonplace (demographics) to complex psychographic based methodologies, there are many paths practice owners can take when selecting the best way to segment clients and markets.

Traditional models

Internally focused models based on assets under management or fees generated have historically been common amongst advice businesses. In many cases the driver of such models has been the dropping of unprofitable clients rather than the optimising of propositions to client needs. Furthermore, such models can be a bit ‘chicken and egg’. For example, advice fees are arguably a propositional element, which should be tailored to segments rather than defining the segments themselves.

Client-centric models

Client centric models are based on client characteristics independent of their relationship with your business. They can be simple or complex.

Demographic and socioeconomic segments are created based on easily identifiable client characteristics such as gender, income, and lifestage.

More complex models, often the result of extensive data analysis and qualitative research, are based on client psychographics – their attitudes, interests, personality, values, opinions, and lifestyle.

Multi-dimensional segmentation

Many models are based on segmentation along multiple dimensions.

A simple multi-dimensional model might segment based on life stage, income, and product usage.

One example of a more sophisticated model is that featuring in Netwealth’s ‘Emerging Affluence’ research paper, which proposes clients be segmented along 6 dimensions:

  • Advice propensity
  • Financial capability
  • Financial resilience
  • Financial wellbeing
  • Technology adoption
  • Brand affinity

All approaches have their pros and cons, as summarised below.

Client segmentation vs market segmentation

Client segmentation is by its nature focused within a business as distinct from the outward perspective of market segmentation, and the objectives and expected benefits from both can often be quite different. For this reason, it is common for businesses to apply different strategies internally and externally.

Market segmentation, for example, will often be driven by the desire to make mass marketing efforts more targeted and responsive.

If using channels such as online advertising or social media, the ability to target will be limited by the data available within that channel, and the extent to which it is aligned to your own segments. The data by which you can target readers of Money Magazine, for example, will be different to the data available to target LinkedIn users. Neither may offer data which completely aligns with more sophisticated, bespoke psychographic segmentation models.

In practical terms, for advisers this usually necessitates external markets being segmented along simpler dimensions such as wealth, profession, or lifestage, even though a more multi-dimensional approach is used to segment existing clients.

Another aspect of market segmentation relates to the more fundamental nature of the business and the market segments they operate in.

Deciding the market segments a practice will serve is an important strategic decision and will be based on many external factors (including the size, growth, accessibility, and profitability of those segments) as well as internal factors such as the firm’s capabilities to meet the needs of different segments and the psychology of its personnel. As an example, whilst a lot of firms aspire to serve high net worth clients, some are not equipped to do so.

Going public with your segments

Depending on the circumstances, segmentation – of clients or markets – can be a proprietary approach known only to the business (with the clients themselves not even aware what segment they are in), or it can be externalised and made clear to customers to help position the firm in a particular market.

An example of this externalised market segmentation in the Australian advice landscape is described in Case Study 1, below.

Case Study 1 – Creating sub-brands for segments: 2018 AFA Practice of the Year, The Wealth Designers, has externalised its segmented approach through a combination of sub-brands and clearly differentiated value propositions. This allows one firm to viably serve a much wider array of target groups whilst maximising the clarity of its communications. Operating under the TWD banner are TWD Essentials, a lower cost offering for those with less sophisticated needs (including younger clients), TWD Advisory, its core advice business, TWD Private, offering services bespoke to high-net-worth clients, and TWD Investment, offering specialised portfolio construction and management services.

As well as each brand having its own visual language, the propositions are differentiated by service and fees, personnel and even location.

How do Australian advice practices segment their clients and markets?

Recent research reveals that internally focused segmentation models are still dominant amongst Australian advice practices, as shown in Figure 1.

The same research revealed that around 75% of firms using segmentation have between 3 and 4 segments (Figure 2).

Encouragingly, some leading Australian advisers are thinking outside the square when it comes to segmentation, with approaches based around clients’ financial knowledge becoming more popular. Case Study 2 details one such example.

Case Study 2 – Segmenting by financial literacy: Against the orthodoxy of a profession that predominantly segments clients based on monetary value or investment worth, 2014 AFA Adviser of the Year Eleanor Dartnall segments her clients individually, based on their practical financial knowledge. That level of knowledge dictates what gaps she needs to fill, via an array of self-developed tools including flipcharts and glossaries. Dartnall classifies clients as either ‘learners’, ‘self-directed’ or ‘delegators’, and tailors her approach accordingly.

Ms Dartnall’s emphasis on informed consent and education – in conjunction with an overhaul of her client review process – has seen her client referral rate improve from 2 per cent to 88 per cent, and her overall client retention rate improve to 100 per cent.[7]

Customer centric segmentation in action – tailoring your proposition

Whilst the granularity with which you tailor your proposition by segment is theoretically limitless, there are several fundamental elements of the advice proposition which can be differentiated, and this is where most advisers start.

Differentiation by segment is common along dimensions such as:

  • Fees
  • Meeting frequency
  • Service levels (e.g. response times to queries)
  • Meeting location
  • Type of advice/services utilised
  • Communication channel and frequency
  • Servicing adviser
  • Access to perks and value adds

To ensure differentiation is clear between your segments, you should be able to create a matrix which shows the differentiation across dimensions and between segments. Table 2, sourced from the USA but equally applicable here, illustrates what such a matrix could look like.

For some propositional elements, it may be helpful to do a deeper dive. Communication, for example, may justify its own, more detailed matrix, as illustrated in Table 3.


Client segmentation is a proven driver of best practice for financial advice practices. Whilst up to 75% of Australian practices use some sort of segmentation approach, a majority still rely on more internally focused methodologies. Using simple techniques, advisers can take a more client-centric approach to segmentation, enabling a better alignment between service offering and client needs, and driving both practice efficiency and customer satisfaction. In turn this can create a platform for more enduring relationships and a more sustainable business.


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[1] ‘Designing the Future, an Advice Trend Retrospective and the Innovation Agenda for 2015’, Whitepaper, Zurich and the Beddoes Institute, February 2015.
[2] https://www.moneymanagement.com.au/features/five-key-drivers-practice-profitability
[3] https://www.zurich.com.au/content/dam/au-documents/advisers/whitepapers/connecting-with-clients.pdf
[4] https://www.moneymanagement.com.au/features/five-key-drivers-practice-profitability
[5] Designing the Future, an Advice Trend Retrospective and the Innovation Agenda for 2015, Whitepaper, Zurich and the Beddoes Institute, February 2015.
[6] https://issuu.com/netwealth/docs/2021-03_simon-hoyle_coredata_webinar_full_slidesv3?fr=sNjJjODM0MjI1Nzk
[7] https://www.adviservoice.com.au/2015/05/award-winning-financial-literacy-advocate-drives-success-with-unique-client-segmentation-approach/

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