The financial advice sector has started to speak highly about the need to segment clients and it seems that more people are acting on those words.
According to an annual census of 180 advisers by wrap platform Nucleus, more than one-in-four (27%) are now actively reviewing their client segments compared to only 3% last year.
The census also found that only 16% of respondent do not use segmentation at all, a significant drop from 29% in 2019.
This indicates there is an increased awareness of the need to segment clients and tailor advice services in line with the product governance (Prod) rules.
Charges
Markets in Financial Instruments Directive (Mifid) II has also contributed to increased awareness of costs and charges among some clients.
Some 44% of advisers believe their clients have an increased understanding of charges now there is greater transparency.
But, 30% of respondents said Mifid II costs and charges statements have made clients more confused about what they are paying.
Despite this, increased transparency is having a positive effect on clients’ engagement with the advice process, as 29% of firms say clients have challenged their advice fees, with 22% challenging platform fees and 22% challenging asset management fees.
The census further shows that advisers are creatively changing their charging models, with more using a combination of charges or fixed fees.
Also 49% said they adopt percentage-based charging, this is a drop from 52% in 2019.
Creative thinking
Barry Neilson, chief customer officer at Nucleus, said: “Our latest census has found a significant increase in the number of advisers reviewing their client segmentation.
“Within this, advisers are thinking more creatively about how they segment their clients. Increasingly, this is not just about the value of clients’ investments but what strategies would be most appropriate for the life stage their client is in.
“As a result of increased transparency following Mifid II, we have seen more scrutiny of fee structures for advice, platforms and asset management showing an increased understanding from advised clients.
“This can only be a good thing as it gives advisers an opportunity to open up the dialogue and demonstrate the value they provide.”
