With the market in the gutter for three years now, scores of private bankers, fund companies and other asset managers are trying to figure out ways to cater to changes in the behavior of their affluent clients. Their pursuit of the wealthy, who, worldwide, have $26.2 trillion at their disposal (see MFMN 7/1/02) and provide one of the only growth areas, makes perfect sense.

But some experts believe that focusing on the affluent as an aggregate group is not the best approach, and that actually, it could make matters worse.

More important than the behavioral changes of today's millionaires is the underlying generational shift underway in the affluent population, says Dr. Betsey Stevenson, a financial services analyst for Forrester Research. Failing to recognize that the wealthy are only getting younger might have some serious long-term affects on the bottom lines of some traditional-style financial firms that have made their money serving the wealthy.

"In 10 years, I believe the full-service, off-line brokerage house is going to be a dinosaur," Stevenson said.


So if the wealthy don't want full-service, what do they want, exactly? To find the answer, one must look beyond general studies on the rich. "Attitudes of Mass Affluent and High-Net-Worth Investors," a study by Click Communications (see MFMN 11/18/02), indicated that wealthy investors don't want to use the Internet, for example. But that's not the whole story on wealthy investors, especially young wealthy investors, who are very much Web-happy.

Most of the younger high-net-worth crowd is accustomed to, and more comfortable with, technology. In fact, using the Internet as part of their daily routine has allowed many members of the younger generation to also grow accustomed to managing money for themselves, rather than paying fees to their brokers or advisers. Good news for the millionaire, bad news for the bank.

The do-it-yourself model seems to be what more of the affluent prefer now, and that doesn't look like it will change much going forward.

"Not only are the younger affluent more likely to use, say, an on-line discount brokerage than an off-line traditional brokerage, but they're less likely to use that traditional brokerage as they age," Stevenson said.

The affluent population in North America, those that have investable assets of at least $1 million, started becoming younger early on in 2000 and today make up an even more significant portion of the total number of wealthy individuals. While many may have gotten rich during the dot-com boom, they're not exactly the cliched 20-somethings who sold a Web site for $300 million and bought a professional sports team.


Some have inherited wealth, but many are serious entrepreneurs. Forrester estimates almost 40% of the affluent in North America own or share ownership in privately held businesses or partnerships. And about 70% started their own businesses.

Most of today's affluent are what Forrester labels as "Validators" - wealthy individuals who consult financial experts at times, but ultimately believe they have the reasoning capacity to make the best financial choices with their money. The research firm estimates they make up over 50% of the affluent population, while about another 30% make up the "Soloist" group - those who manage their money almost exclusively.

"You might think that when things get bad, the affluent would want to have less control over their finances," Stevenson said. "But that just hasn't been the case."

Still, most of the young affluent are likely to surf financial institutions' Web sites for information on products like mutual funds, separately managed accounts (SMAs) and fixed-income securities. Getting them in the door is not the problem. The trick is making them stay.

Account aggregation was once thought to do just that, but the tool never proved to do much. Now financial institutions are considering account-to-account transfers as the new service to hang their hopes on.

Firms like Salomon Smith Barney have recently enhanced on-line services for their high-net-worth clients to allow the wealthy to view more of their financial information - and do more with it - on their own. One new upgrade is its On-line Automatic Funds Transfer, a service that lets its clients move funds between their financial management accounts held with SSB, and their primary financial institution. The thinking is that by eliminating the check-writing process, clients can purchase SSB products more spontaneously, and also manage their money more efficiently. SSB's clients can now also get specific research via the Web that is tailored towards their requests.

Snap to It

These new Internet services do fit in with one recent, broad-reaching survey on rich investors that would logically fit wealthy investors of any age.

The top three reasons investors leave a mutual fund all deal with customer service, according to the Click report. The No. 1 reason is a lack of responsiveness. Poor customer service came in second. Third? Errors and mistakes.

As Sheila McCormick, Click's president and chief executive officer, put it: "Once you get them, you really have to service them." And that goes for Internet, e-mail and Blackberry communiques as well.

Copyright 2003 Thomson Media Inc. All Rights Reserved.

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