Advisers eye client segmentation in RDR survival bid

Separating lucrative customers from the unprofitable will form the centerpiece of advisers' survival strategies in the build up to 2012, a white paper suggests.

A third of firms see client segmentation as the area they will make the most changes to in the next three years as the Retail Distribution Review (RDR) is implemented, the paper from software provider 1st-The Exchange found.

Analysts predict as much as 50% of the current adviser community could be forced out by proposals in the RDR, which include new minimum qualification requirements.

In 'Future Distribution: Interregnum & Opportunity', 1st-The Exchange says the advice arena is undergoing a unique transition period in which opportunities abound for IFAs.

But it argues UK firms may first have to follow a "back to basics" approach before deciding which distribution model to adopt, or to continue to use.

It says "thorough segmentation and analysis" of client databases will enable firms to ascertain the profitability of different client segments "based on past, present and possible future earnings potential".

Having done this, the "important task" of determining the most appropriate and cost-efficient distribution channels needs to take place, it says.

"At this stage it is necessary to commit extensive time and research into the various options," it argues, "but also to recognise that a ruthless approach may also be necessary - with some client segments possibly having to be 'farmed-out' or dropped altogether.

"For those client groups which do not appear to offer any profitable longer term revenue, it will also be necessary to consider the disposal options; selling, pushing or perhaps leaving this group to natural attrition."

Based on the views of more than 120 adviser firms, a total of 33% said client segmentation and data quality was the business area they foresaw making the most changes to in order to be competitive by 2012. Elsewhere, 22% will target marketing and brand strategy, while 15% will look at their current distribution methods and channels. Additionally, 15% will assess their people, training and resource levels, while 14% will look to change their technology and systems.

The white paper from 1st-The Exchange can be viewed here.

scott.sinclair@incisivemedia.com