Segmented Planning for Investment Advisors

segmentation

The Cerulli Edge, U.S. Asset and Wealth Engagement Edition, Issue #255 (November 2018) article showed a poll conducted by Cerulli, the Investments & Wealth Institute (formally IMCA) and the Financial Planning Institute.  The survey reported that advisors increasingly believe that investment management is NOT core to their value propositions. Cerulli’s argument is that the influxes of technology on practices will accelerate this view, so it is not just me saying it.

I didn’t need to see the article to know that the advice trend has been heading in this direction for some time.  We have discussed on these pages the shift from advisor-driven to a client-centric business, which  has led to interesting conversations with more investment-focused firms.  For those firms that see the shift, the challenge is how – how to get there, how to add value and how to start. I thought a recent conversation with a firm would be good to share and answer some of those questions.

Who blinks first?

Over lunch, I met with a fast growing firm. With great marketing, a core niche, and relentless effort this firm was growing almost faster they could handle. It was a good problem to have but as we discussed challenges, the most senior advisor shared that he feared the conversation with some of their larger clients. He knew the firm was doing very limited “back of the envelope” planning but their real emphasis, and their brand, was an educational, market driven investment approach. He’s worried about how to add more value and how to keep his clients loyal to his firm. In a more transactional business environment, he worried about product commoditization and fees. He worried about the competition.

When discussing financial planning instead of investment planning, most of the partners felt that it would be very difficult to add it to the menu of services.  A partner suggested that most of their clients were mass market – primarily focused only on retirement income with little need for the sophistication of comprehensive or holistic financial planning and the software that creates those plans.  At the same time, they felt they were not doing the job needed by some of their larger clients and knew they were at risk.  The question around the room was, “Are we going to add something or are those bigger clients going to leave?”  Who is going to move first?

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Segmented offering

These partners are growing at over $30MM net a year. They don’t want to upset their growth or momentum.  At the same time, they all feel they need to offer more, especially as they see the industry moving to this advice (or client) centric business. As they looked at their fast growing book of business, they realized that they could begin to segment their offering into tiers not just for service but for the offering as well.  By looking at some of the newer, more client focused, planning tools that have been developed recently, they knew that they could offer more formalized planning to segment their clients.

At first, they had to figure out who to segment and what the offer was going to be. They created a persona of the client about who they were worried.  Starting with demographic information, they built out the persona but then added qualitative data as well such as how often they wanted to meet, typical concerns as well as the marketing and relationship management activities that appealed to them.  As most of their clients fit within a niche, it was fairly easy to build out the list.  They then asked:

  • Now we know our persona, How do we want to interact with that segment?
  • What planning and process approach do we want to use for the segment?
  • What platform(s) do we want to use?  (Note that they started with the client first, the process second and then the software.  Too many times advisors start with the software first and try to bend their processes and client relationships into their software.)

Of course, with the easy part accomplished, they now have to incorporate their new approach into their workflows and make sure everyone in the firm is on board with the new offering.  They have started by creating a journey map of their segment’s experience. The journey map shows the touch points and what they want the client experience to look like.

Work in progress

This firm is just getting started on their segmented planning.  As I reflect on what they are going through, I know that there are a lot more advisors who could benefit from this type of process. Segmented planning isn’t just for the firms that have never done planning before.   Think about the firm that:

  • Wants a different experience for the kids of their more traditional planning clients.
  • Wants to create an offering for the DIY client that may not fit neatly into the all in AUM model for planning and investments.
  • Wants to expand into a whole new market such as H.E.N.R.Y’s (High Earners Not Rich Yet).

In our spring 2018 paper, The Next Wave of Advice Management, we looked at the changing landscape of planning. Raef Lee and I suggested that new software and new types of clients are changing the way the planning process is being used in practice.  We showed that based on the types of client and their needs modular, segmented, project based and yes, even holistic planning are all viable alternatives and can be used to differentiate your offering and serve clients better. How have you segmented your offering?  Is your value proposition around investment advice? Should it be?

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John Anderson

John Anderson

John Anderson is the creator and lead author of Practically Speaking blog and Managing Director of Practice Management Solutions for the SEI Advisor Network.

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