If you talk to Distribution professionals about ideas for improving client experience, client engagement models, or how to structure your service proposition, you will undoubtedly find many references to both segmentation and tiering. Both terms are used frequently when talking about how to manage clients across the asset and wealth management industry, but we commonly see them misunderstood and therefore misapplied.
Why Intentional Client Service Matters More Than Ever
Imagine this: increased rates of wins, retentions and cross-sells. Research from across the asset management industry proves the role that purposeful client service can play in achieving this:
- Stickier assets – firms top-rated in client service retain 22% more assets on average.1
- Improved cross-selling conversion – client service capabilities ranked in the top quartile achieve an average cross-sales win rate of 86%.1
- Meeting current and future client needs – 81% of consumers want companies to tailor their experience based on what the company knows about them, and 54% of consumers stopped doing business with a company because it did a poor job of personalising this experience. More work needs to be done, however, with 65% of consumers stating that the companies they do business with specifically need to improve their digital experience.2
In the current cost pressure environment of trying to do more with less, deliberately focussing on low-effort, high-impact activities should be a key focus for Distribution leaders, as they can significantly elevate your brand. To reap these benefits, Distribution professionals should be looking to implement frameworks that service clients with clear intent, by categorising clients (segmentation) and prioritising how you service them (tiering).
So What is ‘Segmentation’?
Segmentation is the division of clients and prospects into groups that have homogenous needs, common interests, or behaviours. Understanding that different groups of clients and prospects within the core channels (i.e. Institutional vs Wholesale) have different needs and preferences can help to demonstrate differentiated client service capabilities. In an era where fees are tight, after performance, clients consider servicing as a decisive factor in manager selection.
When all teams involved in providing products or services to clients understand the proposition suited to the various segments, the improvement to client experience through all stages of the client lifecycle reinforces the client’s feeling of being understood. If they only receive servicing and information that appears to be tailored to their exact wants and needs, there is a stronger likelihood that clients will be happy with their choice of manager and happy clients tend to lead to stickier assets (performance not withstanding!).
And What About ‘Tiering’?
Tiering is the prioritisation of clients and prospects relative to each other, based on an asset manager’s commercial goals in order to maximise long-term value creation. It is often assumed that if there is a top tier of service, the service of the standard and lower tiers are inferior in quality – when client service models are intentional, this shouldn’t be the case!
Tiering enables Distribution functions to provide “cherry on the top” options for strategically important or higher revenue clients, such as more customisation, greater access to investment professionals, and priority treatment for certain requests. This capability does not reduce the quality of service across any tier – it simply limits the scope of the service that is provided for those clients in lower tiers. Tiering does, however, empower Distribution professionals to set very clear expectations with clients regarding the service they can expect, enabling leaders to establish a strategic structure for their Client Service and Sales teams, and determine technology that can facilitate their success.
This structure allows Distribution management teams to manage costs by preventing “add-on” custom service requests into BAU without careful consideration, limiting over-servicing and resource drain. A well embedded tiering model also supports continuous improvement of service propositions because multiple common requests can identify updates or expansion to service to ensure managers stay at parity, or even ahead of the pack, compared to peers.
Why Do Some Client Service Models Fail to Realise Value?
Time and time again, Alpha sees common challenges experienced across the industry when designing and implementing a client service model, which often only amplifies the problems that the new model was trying to solve. These challenges typically fall into three categories:
- Inappropriate client segmentation. Although there are typically many root causes to this outcome, one of the key culprits is the lack of clarity and understanding of the differentiation between client segments. Without clearly understood definitions, clients can easily be misclassified, leading to a deep sense of misunderstanding and frustration during their service experience. Consequently, this can hamper asset retention and cross-selling efforts, undermining future business growth.
- Tiering models constructed are overly complex. Whilst a sophisticated and complex tiering model may seem to be logical in the design phase, it can lead to confusion and inconsistent application, and ultimately low adoption by Sales and Client Service teams. The consequence? Clients receive a level of service that fails to align with what they were promised during the sales cycle. As a result, strategically important clients may not feel they are being treated as such, whilst some clients are being over-serviced, thus impacting the resourcing and cost capacity to provide the ‘cherry on top’ options to clients who are commercially critical.
- Undefined service catalogue. When client service capabilities have not yet been clearly defined, documented and socialised, it leaves the scope of client service in even the best tiering models open to interpretation at each level. This lack of clarity leads to inconsistent service standards across the board, leaving clients uncertain about what to expect and diminishing their overall satisfaction. In an industry that is becoming increasingly global, having consistency regardless of jurisdiction is particularly important to global financial institution clients.
In light of these prevalent pitfalls, it is crucial for asset and wealth managers to address these challenges head-on, ensuring appropriate client segmentation, streamlined tiering models, and an embedded service catalogue. By doing so, businesses can create an effective intentional client service model that truly meets or even exceeds the needs and expectations of their clients, elevating the asset manager’s brand and fostering long-term asset growth and retention.
How Can Alpha FMC Help?
Through our work with top asset managers globally, the team at Alpha can support a review of existing service propositions, share insights into peer comparisons and industry solution trends, and provide clear, actionable steps to move towards the desired target model. If you would like to have a conversation to understand how Alpha could help you unblock your path to growth, please get in touch here.
References
- Greenwich Associates – 2015 U.S. Institutional Investors Study (https://www.greenwich.com/file/20611/download?token=jZlt14-2)
- Broadbridge 2023 – CX and Communications Consumer Insights (https://www.broadridge.com/report/brcc/2023-cx-and-communications-consumer-insights)
- Coalition Greenwich – Winning Through Differentiation – 2022 (https://www.greenwich.com/sites/default/files/files/reports/Winning-Through-Differentiation-22-2041.pdf)
About the Authors
Claire Hepworth
Associate Director
Claire is an Associate Director at Alpha with almost 30 years’ asset and wealth management industry experience.
Immediately prior to joining Alpha, Claire was an Executive Director at JPMorgan Asset Management where she held a variety of leadership roles covering global transformation projects in client service, sales, and marketing, focussing on Distribution and Client Experience.
Prior to her time at JPMorgan, Claire worked for several asset and wealth management firms, including SEI Investments where she led the global client service department and was part of the senior team instrumental in establishing their Global Wealth Platform business, working with private banks, advisers, and discretionary fund manager clients.
Throughout her career, Claire has successfully led numerous projects helping Distribution functions operate more efficiently, while mitigating risk and enhancing both client journeys and staff procedures.
Her areas of focus include client lifecycle and client experience strategy and design, sales process optimisation, client service good practice, management of obligations, fees, rebates and legal agreements, and client onboarding, transitions, and oversight.
Ben Ratcliff
Manager
Ben is a Manager at Alpha with over 6 years’ asset management experience, including holding industry roles at Schroders.
Ben is well versed at building and leading high-performing teams to deliver client experience impacting strategic transformation projects and has supported several of the UK's largest asset managers. He has worked directly with Front, Middle and Back Office on engagements ranging from organisational and operational design through to major technology implementations. He has hands-on experience across all stages of the project lifecycle, including strategy and business case development, deep-dive analysis, project and solution design, and implementation.