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The Many Approaches to Client Classification

Lovaii Navlakhi CFP IndiaBy Lovaii Navlakhi, CFP 

When you have two clients, you wouldn’t think it necessary to classify them. You know the characteristics of each of them and know exactly how to deal with them. When you have 20, it gets a little difficult but is still manageable. But, when you have 100+ clients and a team of 2 advisors besides yourself, you need to classify your clients to be able to organize yourself and your firm and provide better service. Client segmentation has many purposes – to streamline and standardize the service delivered to clients, to set guidelines for your team, to define an appropriate fee structure, and to identify clients and provide them better service, faster.


So, How Do You Classify Clients?

A number of factors can be considered when classifying clients. These factors are also a function of why you want classification.

Location: You may want to measure the amount of business you receive from different regions. This type of classification will help you decide if you want more resources for a specific area that generates more business and helps you discover areas where there is opportunity to get more clients.

Net Worth: Running a frequency distribution of your clients based on net worth can be very useful. Net worth classification helps you focus your workload better, as the scope for incremental business is immense with HNIs. At the same time, this classification enables you to define your service better because the needs and concerns of a lower income individual will be completely different than that of a different income level group.

Products/Services: Classifying clients based on the products/services they are using can be valuable, too. For example, a client may be an HNI but they use your services for investment planning, mainly mutual fund investments, and they have a separate broker for their equity investments and someone else for their risk planning. This would be a prime opportunity for you to generate more business from this client by getting them to sign on to your complete range of services.

Stage of Life Cycle: Depending on which stage of the life cycle the client occupies, their concerns will be different. For example, a client who is 65+ and retired will have different needs than a young client who has been working for only 2 years. Each group of clients has a different set of needs and should be dealt with differently. You could decide to specialize in dealing with a certain category of clients only, like single parents or a retired group and enhance your skills and knowledge, accordingly. My firm has different planners with varying areas of expertise and we partner clients with planners, based on their stage of the life cycle.

Loyal Clients: This is another important factor by which you can segregate your clients. Irrespective of the amount of business they themselves give you, if you are a good financial planner, some of your clients will refer you to their friends, family and associates. Knowing exactly who among your clientele belong to this group will allow you to design special loyalty or referral programs for them. Even if some of these clients give less business or currently are not very active in terms of investments, you can take them out of the ‘no extra or special treatment required’ category and elevate their status to special treatment.

Personal: There are also many personal factors through which classification can be done:

  • Attitude towards risk – An investment plan for two clients with similar profiles may be different due to their attitude towards risk. A client who is cautious of risk may not want to look at equity and therefore, they cannot be forced into a product they are not comfortable with.
  • Degree of financial awareness – A client with good financial awareness needs little coaching but an amateur investor may need a lot of hand-holding especially during volatile times.
  • Background– Family and educational background shape a person’s attitude and experience with money and therefore, your service needs to factor this in.
  • Lifestyle – Goals are closely linked to lifestyle and for example, someone who is an urbanite needs a completely different financial, investment, and risk plan when compared with a rural dweller.
  • Time available – A client with little time on their hands to devote to their personal finances needs a different kind of service.
  • Hands-on approach vs delegation – Again, the client’s personality plays an important role in the financial planning process. If they are a hands-on type of a person, chances are you’ll have to spend more time on explaining why you are recommending what you are recommending. A hands-on client is neither good nor bad. One advantage of having a client who needs a lot of explanation is that they will eventually have a good understanding of finance and need less explanation later on.
  • Experience with money and markets – This is an important factor that sets the tone of the service given to a client. If they have had prior experience with investments and markets and that experience hasn’t been great, then they are likely to steer clear of those products, whether recommended or not. They will have preconceived notions formed that will have to be factored in. Even if their experience has been good, then you will have to stay a few steps ahead of them, because they will be trying to outsmart you and show you their superiority!

Each of these factors differentiates one client from another and defines the type of service you need to provide. As a financial planner, such classification enables you to organize your work better, but you need to remember that each client is different and unique. You can have 2 clients who are friends, in the same income group, who have similar career graphs, but the approach with them might be completely different because while one understands finance, the other doesn’t. You might need to have more reasoning for your recommendations for one, while the other needs more explanation. Or, these two clients could have completely dissimilar lifestyles; maybe one is able to save 60% of their salary, and the other is only able to save 5%. The kind of investments you would recommend would be completely different because the risk they are willing to take varies.

This profession never gets boring because each client is different and unique and you have to tailor the financial planning process to them.

3 comments to The Many Approaches to Client Classification

  • Very nice list.

    To it I would add people who share a passion with me.

    • Lovaii

      Hi Maria. I suppose you are saying in some ways that these will be clients that you “enjoy” being with. While I agree that you may be more charged up dealing with them, the danger is that the others should not be clients whom you “hate” being with!

  • khushboo bajaj

    Your articles are very informative, interesting and can be easily related to.
    I am new in this profession, so found them quite very informative.

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