To serve the affluent better, banks need to rethink the way they define them, the findings of a study suggest.
Traditionally, banks have grouped their wealthy clientele on the basis of investable assets and income, and have delivered the same kind of products and services to all who clear the hurdle of a minimum.
But the one-size-fits-all approach has not worked in banks' favor, according to Michael Kostoff, managing director of Advisory Board Co., a Washington-based think tank for more than 2,000 service organizations around the world, including banks.
In preparation for a conference in October titled "The Future of Affluent Market Delivery," Mr. Kostoff has surveyed more than 100 banks on how they serve well-heeled clients.
"The problem is that most banks have used a high-touch, high-cost delivery system to serve everybody," Mr. Kostoff said. "And human capital is at a premium in private banking."
According to Mr. Kostoff, that method has been very expensive for banks, since only a few wealthy clients are profitable for a bank when served that way - a fact that banks have known for a while.
The old rule that the top 20% of wealthy customers provide 80% of the value to the bank still applies, Mr. Kostoff said.
That is why he and his colleagues at the VIP Forum, the unit within the Advisory Board that deals with the affluent, are recommending that banks segment their clients on their needs, demographics, and even purchasing behavior.
"If someone just wants to be serviced over the phone, I don't care whether he's got $100,000 or $5 million - service him over the phone," Mr. Kostoff said.
Mr. Kostoff, who said he is still working out specific figures, said that some "progressive" banks are starting to rank and service their clients by more than asset figures.
He praised one bank, which he did not name, for easing some clients with smaller accounts into trust and investment services that are delivered chiefly by phone or mail.
But most banks are still slow to change when it comes to segmenting their customers, he said. In fact, a recent VIP Forum study shows banks' private banking and trust departments are among the least favored channels for investors.
According to that study, there are several segments among the affluent, each with distinct needs and deserving special attention. Among them are women, business owners, and people with up to $250,000 in investable assets.
Banks should formulate several methods of service on the premise that affluent clients are looking for advice and access, Mr. Kostoff said.
One such method would be a "premium service," an expensive and relationship-driven service to be reserved for the high-end client who wants it.
Another should be a "virtual advisory" channel, a lower-cost service that can be provided over the telephone.
Finally, according to Mr. Kostoff, banks should develop "assisted channels," like electronic private banking and brokerage services, geared toward lower-end customers or those who like the easy access of such a service.
