Three Steps to Better Relationships Through Client Segmentation

Jeremie Bacon wrote this on November 15, 2018


Managing client relationships is hard work, especially when your most valuable asset - time - is always in such short supply.  For relationship management teams at institutional asset management firms, determining how best to allocate that scarce resource across their limited partners is a significant challenge.  One way some of the successful fund marketing and investor relations professionals I have spoken with over the last few months are addressing this issue is by segmenting their clients and offering different levels of service based on those segments. 

The case for segmentation is clear.  In my experience, firms that segment their clients generally have more assets under management, raise more follow-on money from existing clients, and are better able to deliver a differentiated client experience. If your firm hasn't invested time and energy into a segmentation strategy, it might be a good idea to consider heading into the new year.  I believe the following three steps can be helpful to any business as it starts to think through its client-segmentation strategy.  

Step One: Define your goals and re-examine your ideal client profile 

You owe it to your firm, yourself, and most importantly, your clients, to make time to define precisely what you hope to achieve by segmenting your client relationships. Of course, the criteria you use and the selection process you choose will vary considerably based on your goals. Is your primary objective to dedicate more of your energy to your most prominent clients, to raise more assets from new clients, a combination of the two, or something entirely different?

The segmentation process takes a long time, so don't rush it! Be precise in determining the balance you are hoping to achieve across your client base over the next 18, 36, and 60 months. Additionally, be sure to make a point of identifying how your ideal investor profile is likely to change over that same period based on your firm's overarching goals. Realistically, you won't be able to begin the actual work of reallocating your firm’s scarce resources and shifting your service model around until you've defined your end-game. So, take your time and think it through. 

Step Two: Create segments that align with the kind of client experience you want to deliver 

Thoughtfully analyzing your client relationships is essential to getting your segmentation program right.  Coming to know your investors and the conditions that are most important to their definition of success for the relationship is critical to developing effective plans for long-term retention. Regardless of the approach your team takes, developing and implementing a framework for segmenting and managing your clients based on the kind of experience you want to provide is essential. What's more, ensuring everyone at the firm understands and can get behind the effort is critical to the success of a long-term investor relations strategy.  

One way to ensure success in this endeavor is to create a rich customer journey map (sometimes called an experience map). Journey mapping help can your team capture and articulate your client service philosophy.  A journey map is a diagram that clearly illustrates the steps and stages a client goes through as they interact with with your company over time.  Because every industry and every business model is different, every company – even close competitors – will have a different journey map. Also, as Adam Richardson points out in his Harvard Business Review article, Using Customer Journey Maps to Improve Customer Experience, “for any business, the more customer touch-points, the more complicated – but necessary – a map becomes.” 

I’ve written about journey mapping and shared some guidelines for how to create one, along with a few good examples elsewhere. Feel free to use my sample template to work on your own experience map. It’s an exercise that is worth its weight in gold. 

Once you’ve mapped out the kind of experience you want to create for your clients, you can get to work on creating your segments.  Many fund managers we speak with use investor "check size" as the critical criteria for segmentation while others prefer to use the common preferences of certain client types that they uncover during the sales and on-boarding process.  No matter the gauge, the most important investors typically receive benefits such as more frequent access to the fund's investment team, bespoke position and transparency reporting, or more favorable fee structures. Some managers have even started providing monthly or quarterly commentary for certain client segments in easily digestible (and producible) formats such as audio or video presentations hosted on their websites.  Others get even more creative, catering to specific groups by offering unique experiences that accompany all the other reporting-related stuff. Examples include special events and outings and private meet-ups with celebrities or industry experts.   

Many investment managers report getting high marks for disseminating information in novel formats and providing differentiated services and experiences to their clientele. Managing client touch-points based on segmentation can help firms raise investor satisfaction levels while simultaneously differentiating themselves from their peers. What's more, by segmenting their clients and providing a "goldilocks" level of service for each client profile, they can cut down on the number of hours they need to spend on the phone or in face-to-face meetings with a large portion of their clients. 

Step Three: Build a system that allows you to transition clients between segments over time proactively 

Once you've clearly defined your goals and settled on your ideal segments, you need to establish a framework for transitioning and managing your client relationships according to the services you plan to provide. For investment managers, this generally includes deploying relationship management software to help capture interactions and activities, as well as automating the distribution of reporting and other communications. It often involves a system for distributing information or digitizing the client on/off-boarding via your website. Taking things one step further, it can also entail creating playbooks that outline your firm's best practices for managing relationships according to your customer journey map.  

With your systems in place, you can then start the process of moving clients into the right service segment. You need to take great care to manage this process in a way that will strengthen, not damage, your relationships. If your segmentation strategy calls for changes to the kinds of services each client will be receiving, it’s critical to convey what those changes entail and how the client will benefit from them. Both you and your clients should walk away feeling like you have gained in a meaningful way from the transition.

 I believe getting to know your clients and creating tailored service offerings for them is a powerful way to differentiate your brand and raise + retain more assets. By segmenting your clients, you can more effectively set and manage their expectations, ensuring they feel valued. Additionally, your investor relations and fund marketing teams can free up more of their precious time to focus on their key value driving activities and enhance their overall productivity.  What's not to like about that?