As we run headlong up to the implementation of RDR at the turn of the year, the financial trade press is full of articles advising IFAs on how to develop value propositions that will be relevant to their clients, and profitable for them.
The advice pretty much always begins with the vital importance of segmenting the IFAs’ client bases, or client banks as they seem to prefer to call them, and the proposed segmentation is pretty much always on the basis of some kind of measure of value – either the value of the clients’ portfolios, or the value of the fees the clients can be expected to pay.
This is certainly simple, and at first it sounds reasonably sensible. But in fact, “simple” and “sensible” rarely sit comfortably together in the world of segmentation, and I fear that such is the case this time too.
There are a bunch of quite important objections around the fact that the adviser may only have responsibility for a small proportion of the clients’ total wealth. Imagine, say, that Warren Buffett had impulsively bought an ISA as a one-off transaction from an IFA firm. He would undoubtedly fall into the least-valuable segment – the one to be offered an almost-insultingly poor standard of service in the hope that he’d take his miserable little investment elsewhere. Which would be a mistake, obviously.
But that’s not really the point I want to dwell on. My point is to do with the whole other side of segmentation – the side that doesn’t deal in the apparent simplicities of numbers, but deals with much more difficult and slippery subjects like attitudes and emotions.
The example I’ve been giving to demonstrate the orneriness and irrationality of IFAs’ clients is, in fact, me. I read recently about an IFA who had decided that from January onwards, he would double the number of regular face-to-face review meetings with his clients from two a year to four. And, what’s more, he would start sending out a weekly Market Commentary email as well.
He obviously thought his clients would be pleased, and, more importantly, that the news would make them happier to pay his Ongoing Adviser Charge.. But if I’d been a client, I’d have been horrified. More meetings and a newsletter? Benefits? Au contraire.
If there are two things which really bug me in my life, they are a) too many meetings in my diary, and b) too many emails in my inbox. No plan that involves adding to both is going to be welcome to me. In my case, the benefit would be exactly the other way round: the fewer meetings I have to go to, and the fewer emails I’m supposed to read, the happier I am and the more I’m willing to pay. But I’m not sure if this point of view would make much sense to most IFAs, and I’m bloody sure it wouldn’t make any sense to the FSA.
There are of course other people who look very like me, only perhaps not quite as tall, who would be delighted to have four meetings a year and a weekly Market Commentary email. Picking out the ones who’d be delighted, and separating them from the ones who’d be appalled, isn’t easy (although I can’t help thinking that when an adviser has a total of around a hundred clients, asking them what they’d prefer shouldn’t be an unmanageable task).
But that, as I say, is the thing about segmentation. There are simple ways of doing it, and there are sensible ways of doing it. But I’m not sure there are many ways that are both.