Banks are positioned to corner the mass-affluent market, as separately managed account firms and other wealth managers choose to ignore investors with less than $500,000 of assets in order to pursue the ultra-wealthy, according to PricewaterhouseCoopers (PwC).
The firm's 2003 Global Private Banking/Wealth Management Survey says that 49% of wealth managers expect to increase their ultra-high-net-worth clientele, defined as those with $10 million or more to invest, in the next three years, but only 14% plan to grow their base of merely affluent clients.
John K. Fletcher, the leader of PwC's North American management services unit, said that since ultra-wealthy people make up only 2% of a wealth manager's client base, competition for these customers will be stiff. He said the bias toward the wealthiest would leave a large number of mass-affluent customers (those with $100,000 to $500,000 of assets) ripe for banks to cherry-pick.
Besides retail banks, Fletcher said, only insurance companies and mutual fund providers have the necessary scale to go after the mass affluent. However, "insurance companies are handicapped by the agency structure, and mutual fund companies don't have the personal relationships in order to cross-sell to their affluent customers," he said. "Retail banks are really in a unique position."
Fletcher said it is difficult for wealth managers to create the proper business model to make money on the mass affluent. "The mass affluent, whether you are talking $100,000 or even $1 million, is a hard market to manage," he said. "These individuals are looking to accumulate wealth, their expectations for service are high, and they don't want service that is driven by technology. Typically, there is a lot of frustration among these consumers. They want more, and they don't expect to pay for it."
Fletcher said companies that handle ultra-wealthy clients typically have a hard time moving down market. "These firms use more of an expensive model for their wealthy customers," he said. "They need to create a different model, they need scale, and they need technology. That is the only way to work downstream. What doesn't work is a high-touch relationship model. It is just too expensive."
Banks with strong retail arms rather than strong private banking divisions can succeed with the mass affluent, Fletcher said. "Big banks can play in a lot of areas," he said. "They have the scale, they have the systems, and they have multiple cultures that allow them to be successful in many different areas at the same time."
Some banks are developing back-office capabilities and fee-based products in order to increase cross selling among their mass-affluent customers.
Harris Bankcorp bought CSFBdirect and Morgan Stanley Online in 2001 to create HarrisDirect, a unit intended to help the Chicago subsidiary of Bank of Montreal build wallet share among customers who use the online channel. Harris wants to offer its self-directed investment customers who have more than $100,000 of investable assets fee-based products such as separately managed accounts, as well as discretionary investment management and private banking services, such as estate planning and trust services.
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