As wealth management firms rush to attract multimillionaire investors, they are slashing or even eliminating services for customers who fail to meet increasingly stringent minimum investment requirements. In doing so, they put at risk their hold on a rapidly growing segment, the emerging wealthy.
At some firms, $1 million of investable assets no longer buys personal service. These clients are instead relegated to call centers or one-size-fits-all Web offerings. The new threshold for unlimited adviser access and tailored wealth management services is $5 million, or even $10 million.
The rationale is that yearly revenues from a single multimillionaire client can equal more than the combined sales to several upper-middle-class customers. Far fewer of the richest clients can guarantee profitability. Yet ignoring the emerging affluent ignores an important revenue source and a chance to cement relationships with a crucial, and growing, population of customers.
Who are they? Statistics abound and contradict each other. Analysts and financial services providers define the emerging affluent variously as households with at least $500,000 of investable assets, $1 million, or up to $5 million. This much is clear, however. Regardless of what asset base is used, the emerging affluent are ill-served and, in many cases, ignored.
Though many high-net-worth service providers are not equipped to manage upper-middle-class customers, firms blessed with scale, innovation, and operational excellence should reach out to this customer group.
First, wealth management does not have to be an either-or proposition. Firms with a keen understanding of their diverse customer base can adopt different strategies for each client segment.
Second, the emerging wealthy possess a number of key attributes that make them highly desirable to providers that are able to serve them cost-effectively and are forward-looking. Such firms know that between the haves and the have-nots lie the have-someday-soons.
Though pentamillionaires and their brethren create all the glamour in wealth management, the sub-$5 million investors pay their providers bills: This group is responsible for nearly four-fifths of wealth management revenues, according to an analyst firm. Providers should not forsake this market.
Though both high-net-worth and emerging-affluent customers are more comfortable using the Web regularly to obtain financial information, price-sensitive upper-middle-class investors are more likely to use the full gamut of financial management services and to at least get started on them without needing personalized advice.
Wealth management firms can use services like aggregation, electronic payments, investment alerts, and portfolio analysis to give clients a hitherto unprecedented level of knowledge about and control over their finances. Real-time technology tools become all the more important when investors are dealing with an unstable economy and an increasingly unpredictable world.
Shaken by the terrible events of Sept. 11, many emerging-wealthy customers have probably revisited their financial plans evaluating long-term goals in light of the new risks, tackling estate planning, and increasing life insurance and disability coverage. Technology can help: Investors can develop instantly executable contingency plans to avoid being crushed by a seesawing Dow or an unforeseen disaster.
Schooled in myriad Web research techniques, the emerging affluent are more likely to do much of the up-front work and turn to their providers for confirmation of their choices or for highly targeted guidance. Thus, personal service, the profit-killer of serving the lower and middle classes, can be controlled by creating innovative interaction strategies and providing rich self-service tools.
Accustomed to doing online research to find superior products at a lower price, emerging-wealthy customers will not want to limit their options to proprietary offerings. Sole-provider offerings diminish the financial services packages these customers have been able to create for themselves.
Aggregators that offer only their own services and products will find it difficult to gain scale or consumer trust. As aggregation services evolve, providers that offer neutral advice and access to a wide array of products will win customers good will, loyalty, and wallet share. Sophisticated aggregation services can help banks form long-lasting, profitable relationships: TowerGroup has found that trimming customer defections by just 5% yields a 25% increase in an organizations profitability.
Customers will flock to sites that provide transparency, best-of-breed solutions, and lifestyle enhancements. Providers should invest in calculators, modeling tools, automated advice and financial planning, and tax tools, as well as directing users to tax, legal, and other specialists in their ZIP code. In addition, aggregators should take a page from loyalty program leaders and offer Web-only products, coupons, and incentives to drive traffic and increase retention.
For customers who are travelers, provide bot-enabled Web deals so that they can compare fares and schedules with ease. Then follow up with credit card offers, cobranded with their favorite airlines. For the avid shoppers, give discount coupons that they can use at favorite retailers for private sales events.
Financial services institutions can use low-stress, low-commitment pitches from favorite lifestyle providers to demonstrate aggregations power and value. As customers grow more comfortable with aggregations security, accuracy, and ability to supply best-of-breed services, they will increase and widen their use of services. It is likely that customers will use passive services such as account review, product research, and portfolio analysis before graduating to transactional services such as electronic payments, couponing, and product purchases. Moving customers from passive viewers of information to active users of multiple services is crucial if aggregators are to achieve the proper return on their investments.
Fortunately, targeted product offers show the way forward.
Though for profit reasons firms will want to limit access to advisers by the emerging wealthy, they should not block it entirely. Survey after survey has found that even the most empowered investors want advisers to validate their choices. More significantly, however, serving the emerging affluent gives wealth management firms a chance to establish what could be lifelong and highly profitable relationships.
Though competition is fierce for high-net-worth customers, most have already established adviser relationships; the emerging wealthy have not. Forrester Research recently found that only 34% of the people with less than $200,000 of investable assets were already working with advisers.
Wealth management providers should think of cost-effective ways to link advisers and clients. Teleforums, pay-as-you-go access, co-browsing, and instant messaging are available strategies. Customers value personal service. By structuring adviser-client interactions, firms can keep costs down and upgrade their customers to private-banking-style services as their portfolios warrant it.
As full-service firms leave the mass-affluent market, savvy providers will have a wider opportunity to cement relationships with up-and-coming investors. In a way, it is the return of the relationship banker, though one empowered with technology and real-time information about customer profitability. Firms that accept this challenge will need to create a service mix that offers the right degrees of tech and touch and translates an understanding of customer needs into appropriate offerings. The latter challenge is by far the more difficult.
Generic services and products will not woo the emerging wealthy. Instead, providers need to customize technology offerings to meet users needs and desires. Much like their high-net-worth counterparts, the emerging affluent are a composite of their attitudes and beliefs, goals, and life circumstances. To succeed, technology services should be tailored to user preferences, letting customers dictate what content they receive, what services they use, and how they interact with these offerings.
Some early innovations in this area are personalized Web pages, which advisers can customize for their clients; content management systems; and P2P services, which let clients co-browse research and services with their advisers.
As wealth management firms shape technology-rich, adviser-supported services to meet their emerging-affluent clients needs, they will increasingly win over this important constituency. Though not initially as lucrative as high-net-worth business, serving the emerging wealthy lets providers cement relationships with clients who are often younger than their more affluent peers and thus have many years of investing ahead of them.
In addition, providers need to remember that their clients are often just a new job, retirement rollover, bonus, inheritance, or childs graduation away from escalating their investments. In short, todays emerging-affluent investor will often become tomorrows high-net-worth customer. Technology, innovation, and judicious adviser support can point the way to capturing this important and too often ignored customer base.
Mr. Mann leads the personal financial services practice at Sapient, a business technology consulting firm headquartered in Cambridge, Mass.
