The so-called mass affluent hold an enormous share of U.S. investing wealth, at last count some $6 trillion in assets. As the Baby Boomers age, the mass-affluent population and its wealth are growing. American Express Financial Advisors (AEFA) has always catered to this big group, defined as those with between $100,000 and $1 million to invest. But as the competition for this market intensifies, AEFA is making a bigger push to retain existing mass-affluent clients - and to attract new ones.
"This is the sweet spot," noted Jane Lee, vice president and general manager of AEFA's affluent client group. "The Baby Boomer generation is why the mass affluent segment is growing as fast as it is, and we know [the mass affluent] like the back of our hand," she said. "It's always been our segment, but we want to increase assets. This is about our focus, where we're going to focus time and resources."
Biggest Ad Push Ever
At the center of that effort are AEFA's new Gold Financial Services and Platinum Financial Services programs, and the firm's most expensive advertising campaign ever. American Express kicked off the TV and print campaign, which is targeted at the mass affluent and aimed at boosting brand awareness for its adviser services, late last year. The ad campaign, which will cost the firm more than $20 million, according to some industry estimates, is the first to focus solely on AEFA adviser business.
Meanwhile, the company is in the final stages of rolling out its Gold program, which offers a number of special perks and discounts to clients who invest between $100,000 and $500,000 with AEFA. The broker/dealer first launched that new offering in June, and made it available nationwide in December. It came out of AEFA's Platinum Financial Services, which it rolled out for individuals with between $500,000 and $1 million to invest in 2002.
With the Gold and Platinum programs, AEFA hopes to add new accounts, breed loyalty among its existing mass-affluent customers and encourage those who aren't at the Gold or Platinum threshold to invest more with the firm to enjoy those benefits. Their strategy is a smart one, said Matt Schott, an analyst at Needham, Mass.-based Tower Group."When you look at the very-high-net-worth folks, you can often only have a piece of a client's business and still do really well," Schott said. "As you get down more to the mass affluent, it's difficult to deal with that segment around the edges. You must create packaged pricing and benefits to attract a bigger slice of the investor's wallet, or the investor won't be profitable for the firm."
Gold clients will have access to traditional planning offerings such as retirement planning, wealth management, tax advice, and college financing. But they also win more face-to-face time with the adviser, plus certain benefits like a no-fee credit card, free online bill payment, discounts on home loans, and higher rates on savings accounts. In addition, they get access to a personal Web site containing account information and a customer service center dedicated to their calls.
The Platinum service includes more complex offerings like estate planning, business transition planning, trust services, and charitable giving strategies. The perks are fancier, too: concierge services, airport club access, airline tickets and access to hedge funds, among others.
Amex advisers must receive training to offer either package to their clients. For Gold, an adviser must enroll in a one-day training program. For Platinum, an adviser has to be an AEFA Senior Financial Advisor and a CFP, finish three days of training, and take exams every two to three years. "For some advisers, it's on their radar screen to become a Platinum adviser," explained Geri Pell, CFP and MBA, who's a Platinum Financial Services Advisor for AEFA based in New York City and Harrison, N.Y.
Pell reported her clients love the perks and the additional meeting time. "When you're offering someone Gold Financial Services, you're showing them that they are a valued client," she said. "They like that recognition." One of the architects of the Gold and Platinum programs, Pell has been offering Gold services since the pilot program was launched in 2003. She said the Gold and Platinum programs have helped her to lure 50 new clients to her practice over the past year. They've come from a variety of financial services institutions: banks, wirehouses and small financial advisers "who maybe haven't been paying enough attention to them," she added.
Loyalty can be tough to build among the mass affluent, research shows. This is partially because their accounts are simpler, and as a result, easier to transfer. In fact, SRI Consulting Business Intelligence (SRI-CBI), based in Menlo Park, Calif., and a spin-off of the former Stanford Research Institute, estimates that up to one-fifth of mass affluent households are in the market for a new adviser each year because people often switch brokerage firms after getting a new job or moving to a new town. This can be both a blessing and a curse.
Certainly, Minneapolis-based AEFA has plenty of competition. Today, about 30% of the mass affluent population uses a full-service broker as its primary adviser, while 10% of them count on bankers, and 19% look to CFPs, according to a study by the Spectrem Group.
Among mass affluent households that get advice, Fidelity Investments is the overall leader, with about 25% holding a Fidelity account, according to a survey of 3,800 homes by SRI-CBI in mid-2002. Merrill Lynch is next, with around 14%. Vanguard Group, Charles Schwab, and AEFA are tied with 9%-10% each.
Still, Schwab and AEFA may have an advantage over their other rivals as they fight to gain market share. (Schwab is aggressively courting the mass affluent as well, having rolled out its Schwab Personal Choice program earlier this year.) Both firms have a much larger number of local offices than the others, excluding Merrill Lynch. American Express has almost 750 area offices across the country, while Schwab has 379 branch offices and Vanguard 92.
American Express also argues that most of its competitors don't offer personal advice for the mass affluent market as AEFA defines it. There are, in fact, a number of different definitions of the mass affluent: SRI-CBI defines the segment as those households with annual income of $100,000 or more or assets of $500,000 or more (not including the primary home), but with less than $1 million in net worth. The Spectrem Group defines them as those with a net worth of between $250,000 and $500,000.
"Some are now offering advisers, but the threshold is higher than $100,000 for personal advice," Lee said. For those at the lower end of the mass affluent market, Fidelity offers only its self-directed tools, while Schwab offers only its phone advice, she said. "At AEFA, clients have a personal relationship with a knowledgeable adviser to guide them through the financial planning process and to create a long-term relationship that helps them meet their goals," Lee said. "That's what differentiates us from competitors."
Kristen French is a senior editor for Financial Planning.