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Categorizing Clients

May 1, 2014 • David Lawrence

As a financial advisor grows, the practice reaches a point in which the practitioner may wish to consider developing ways to categorize his or her clients to identify profit levels on a per client basis. Even more important is identifying service levels associated with those same clients. It simply does not make sense to offer the same level of service both to a client who has placed small amounts of investable dollars with you and to another client who has invested millions. Therefore, methods need to be devised for identifying and then carrying out service levels that match the client’s needs and are cost-efficient for the advisor.

Some advisors have used a system consisting of such names as “platinum,” “gold,” “silver” and “bronze” as categories and then assigning assets under management (AUM) levels to each of those categories. However, this may not go far enough in fairly delivering services to those clients who may not exactly fall into one or another category. So how can a financial advisor develop a system of categorization that fits the unique characteristics of a diverse array of client types or service deliverables?

The first and most fundamental step is to analyze the client base. By creating a spreadsheet (for instance) that shows how many clients fall into different levels of AUM, fees or planning retainers, it may be possible to uncover breakpoints that can later serve as the criteria for categorization. Here is an example:

Figure 1 shows a comparison between identified client categories (platinum representing the highest AUM) and client count per category. This type of analysis can reveal some surprises. As can be seen, the silver category has the third-lowest investable asset numbers, yet has the highest client count. The platinum category, which contains the highest levels of invested assets, is barely in second place in client count. In this example, the financial advisory firm created these categories, but then split out of each category those clients who had managed accounts and separated them from those who had accounts placed through a brokerage firm (custodian).

To read more and see more examples got t0: http://www.fa-mag.com/news/categorizing-clients-17743.html?section=139

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