While Mark Polson, principal at the Lang Cat, says: “We are finding more and more that advisers are becoming aware of the requirements of Prod in terms of segmenting clients by need rather than asset size.
“This is a good thing because AUM is a pretty bad indicator of client requirements, except at the extremes.”
He continues: “Whether firms are doing it by life stage, or by occupation – so one segment for employed accumulators, another for company directors, another for doctors and other senior public servants – we are seeing firms move up and away from pure AUM segmentation.
“Arguably firms have segmented on attitude to risk for a long time; that drives the portfolio they are in, but this is something a little more fundamental than a slightly tweaked asset allocation.”
Fact find is key
Importantly, you cannot segment until you have done a fact find, notes Mr Farquhar.
He explains: “You need to understand exactly what the client's financial position is, what their needs and aspirations are etc.
“The client fact find is everything: if you get that right everything else falls into place.”
For example, he says you might have a segment of clients that are looking for long-term growth and accumulation of value in their portfolio as they are saving for retirement.
He continues: “Yet within that segment, you need to go through attitude to risk and appetite for loss at which point you might use an attitude to risk questionnaire, but there will also be multiple risk profiles for clients that sit within the same segment of client outcomes.
“But I think the most important thing with tools like the ARQ, is that they are designed to encourage a genuine conversation with the client.”
Victoria Ticha is a features writer at Financial Adviser and FTAdviser
