Client segmentation is incompatible with treating each client as an individual with particular goals, needs and circumstances – we hear this regularly from advisers. The regulator’s desire for advisers to categorise clients sounds great on paper, but advisers are often reluctant to do this type of segmentation – especially for retired clients with their wide range of circumstances, goals and expectations.

We’ve been looking at client segmentation as part of our research on advisers’ retirement propositions. Identifying client types can be very useful, and in reality advisers talk about them all the time – just not in a systematic way for a segmentation exercise. Some of the key segments are:

  • Clients without much wealth at all. Advisers tend to have few of these clients reaching retirement, and are unlikely to provide them with decumulation advice – annuities are more likely to be the solution for their long term income needs.
  • Clients with modest assets who are at great risk of running out of money before they run out of life.
  • Clients who seem wealthy enough for their future standard of living to be secure, probably because they have DB pension as well as some other dependable sources of income. The potential IHT on their estate is likely to be more of a worry than running out of money.
    In our conversations with advisers, most claim to have a high proportion of their clients in the wealthy third segment, who seem safe from any financial hardship.

We think that some clients in this apparently safe third segment should really be in the second – or at least they should be less complacent about their position. Plenty of advisers told us that their clients don’t have to worry about running out of money, but in their next breath mentioned concerns about clients over-spending. One begets the other. These clients aren’t bomb-proof.

We’re seeing more advisers adopting stochastic cashflow modelling and using more objective measurements of capacity for loss. Hopefully these will identify those clients who are wealthy now, but could be at risk of penury twenty or thirty years into their retirement.

Platforum will be publishing UK Financial Advisers: Advice in Decumulation next week. For more information contact richard.bradley@platforum.co.uk