Hurdle rates, client segmentation, M&A, valuation, exit strategy. You’ve heard of these terms before but maybe aren’t quite sure how they might apply to your practice. In this three-part series, LPL Financial breaks down some common terms and misperceptions. We’ll show you how looking under the hood of your financials can ignite growth in your practice, streamline your operations and reduce overall expenses. We’ll look specifically at your P&L, the importance of determining your valuation, and client segmentation. 

In part one, we talked about how your profit and loss (P&L) statement can uncover insights about your practice. We covered hurdle rates and the importance of individualized benchmarking when it comes to analyzing the data in your P&L. In part two, we looked at how important your valuation is to your business. In part three, we’ll take a look at client segmentation.

Client segmentation is the process of analyzing your financial data, and mapping it to your client base to determine which clients are bringing in which revenue. This is important because a successful financial advisor needs to be able to differentiate between clients, and how much service they are receiving. This helps you to deliver the right amount of service to each client. 

Client segmentation can also be very powerful when you’re considering selling off a part of your practice, or acquiring a new book of business or practice. The clearer you are on these numbers for your firm – and any firm you wish to do business with – the better your outcome will be.

It’s more than just data

Tread carefully, as you’ll be analyzing more than just data and revenue. Client segmentation involves a great deal of qualitative analysis as well. Once you have the client data in hand, you’ll take another look at these clients with a trusted partner or expert in this area. There may be clients who you have long relationships with, clients who are not as active but may have referred larger clients to you, or clients who may be close friends. Highly individualized benchmarking can also help here to look at where you stand in terms of peers.

How to design a client service program

Once you’ve grouped and organized your clients, you’ll want to take a look at how you’re servicing each client. Does every client get a phone call from you every week? Do certain clients get perks like dinners out or invitations to other fun events? Do you find yourself spending more time on smaller clients who don’t bring in amounts commensurate enough to the time you spend with them? Looking at client service can uncover significant insights into your business’ profitability, as well time management, operations and staffing.

Client service levels

Consider dividing clients into A, B, or C service levels. A-level clients may get more of your undivided attention via emails, phone calls, and dinners out. B-level clients may get a lesser amount of your direct attention, and more attention from junior associates. Your C-level clients may be limited to specific amounts of communication from you directly and have more interaction with a junior member of the team. All clients still receive your highest fiduciary attention, but it’s tiered and split so your executive attention is budgeted wisely. 

You can also segment out clients by offering different service levels for different costs. You could also offer specific sets of additional services for each level of client. For instance, A-levels might get free accounting services. C-levels might get accounting tips delivered via email. 

Client perks 

Instead of focusing on what you’re not offering C-level clients, consider giving all clients the same baseline perks, with A- and B-levels clients getting additional perks. This could be a free eBook to all clients, but upgraded to a personalized seminar for A- and B-level clients. Tuning in to client interests are key when engaging in client segmentation. Clients with families might have different perks that resonate with them like discounts on family travel packages. Clients nearing retirement might want connections to personal tour guides in a destination of their choice. When it comes to perks, your only limits are your imagination. 

Round it out 

Quite often, advisors go through this process with our CFO Solutions team, and are surprised by the outcome. After Advisor Evan Harris of Whitefish, MT began the segmentation process, he overhauled his entire client service model.

We were looking at things like, how do we organize our client service levels, and how do you think about profitability for different groups of your clients? CFO Solutions did this wonderful analysis for me where we looked at our service model, our revenue model, making the business more profitable and easier to manage, and setting ourselves up for better referral sources within our client base. My expectations have been shattered in a great way. It's much more than I ever expected,” he said.

Partnering with an expert with a holistic view who asks the right questions and crunches the numbers is crucial.

Digging into your practice’s data can uncover new insights, opportunities for more profitability, and more options for streamlining your business. If you’d like you’re interested, schedule a time to talk with one of our business experts or learn more about CFO Solutions


The views and opinions expressed by the LPL Financial Advisor(s) may not be representative of the views of other Financial Advisors and are not indicative of future performance or success. Neither LPL Financial nor the LPL Financial Advisor can be held responsible for any direct or incidental loss incurred by applying any of the information offered.