He says: “The vast majority are good at it, so the risk of poor segmentation is there on paper but I do not think it really exists in the marketplace.”
Nevertheless, he says it is important to remember, especially if you have a centralised investment proposition, to "segment clients in such a way that it makes it easy for you to provide wholesale advice to meet their end needs”.
'Segmenting by wealth is a mug’s game’
Because segmentation occurs within the investment arena, clients are often taken on based upon the minimum level of their wealth or assets, according to Jiten Varsani, mortgage and protection adviser at London Money.
Mr Varsani suggests the main danger of segmentation is the possible limiting of advice for those with lower levels of assets.
He says: “At a time where we should be trying to improve access to advice for all, segmentation [by wealth] hinders these efforts.
“However there is a need for advisory firms to maximise earning and profits, but there is the danger of alienating the ‘lower tier clients’.”
Similarly, the Lang Cat’s Mr Polson says it is perfectly possible for a client with £200,000 to have far more complex affairs than a client with £1m.
He says: “Or if they do have the same level of complexity, it is highly unlikely that the £1m client costs five times more to look after.
“There is a difference: professional indemnity cover naturally costs more for more affluent clients, and the firm may feel that a £1m client warrants a little more contact than a £200,000 client, there may be some more pension planning work around lifetime allowances, but it is not fundamentally different year on year.
“The other issue is that if you decide that, say, you use platform A for clients up to £250,000 and platform B for clients above that, you create artificial cliff-edges which are indefensible in the real world.
“If your £200,000 client suddenly tells you about a £100,000 group pension you didn’t know about before and transfers that in, do you move her to platform B?
Almost certainly not, at which point your segmentation is already bust.
Some form of assessment of client need rather than pure pound signs is so much more workable.”
He adds “segmenting by wealth is a mug’s game” but that it “can be a useful way to see where you are making money and where you are not (especially if you are logging time)”.
Improving segmentation
There are a number of different aspects to consider when looking at risk segments, according to Natanje Holt, retirement specialist at Bravura Solutions.
