Too many banks are doing themselves a disservice by focusing too much on the high- net-worth and ultra high-net-worth segments, and not enough on the mass affluent.
That may sound like heresy in an industry that has routinely stressed the importance of wealth management for all, but Celent senior analyst Robert Ellis is sounding the alarm that most U.S. banks are missing the mark with their client strategies. There has been an "ongoing battle to break down silos, an incredible amount of lip service, but under the superficial level of having a new guy in charge of a bank's wealth department, or whatever, it's still the same old game," he says.
That same old game has meant that banks' wealth-management departments are guided by the same mindset. Silos and territorial mindsets hamper customer service: Whoever brings in the client keeps the relationship. This behavior belies what banks are saying publicly about enhancing service. Namely, that they've creating a referral structure and are letting customers' needs dictate the direction of the relationship, rather than turf wars and wrong-headed compensation polices that discourage employees to hand off the relationship-even if it's in the customer's best interest. "Banks are still product-focused, despite their best efforts," Ellis says.
For all the lip service coming from banks' wealth-management departments about providing service for all consumer segments, they are really pursuing only a very small potential segment: The HNW and ultra HNW. "If you look at the people with $2 million and over, it's an incredibly small universe," he says. "I guess math is something they don't teach private bankers."
According to the most recent World Wealth Report, an annual survey of Merrill Lynch and Capgemini, some 9.5 million high-net-worth customers-or those with $1 million or more in investable assets-live in the U.S.
And when the focus is turned to the ultra high-net-worth crowd, the numbers are smaller still. Fewer than 100,000 of these ultra-rich customers-those with $30 million or more in investable assets-live in the U.S.
But these numbers are large enough to have drawn a number of European banks to American shores to compete in the U.S. wealth market, Ellis says, is making things even tougher for all providers.
The customer segment just below the wealth-management strata-the mass affluent-is where banks should be looking for future growth, he says. More than 96 million mass affluent-those with between $500,000 and $1 million in investable assets-live in the U.S., a sum 10 times greater than the number of HNW and ultra HNW clients combined.
Moreover, this segment plays more of the strength of what banks offer in service. Those in the affluent segment, with less than $2 million in investable assets, are concerned with one thing: retirement. "Retirement is the end all and be all," he says. And asset allocation, which is what is needed to best position a customer's portfolio, is a skill that banks have in spades.
Conversely, the HWN and ultra HNW customers have different sets of needs, he says, which still elude most banks. For example, the ultra wealthy need services that include philanthropy, estate-tax issues, generation-skipping trusts and alternative investments, he says.
Does this situation promise to improve? Nope. In fact, Ellis's prognosis calls for the situation to worsen for banks, as consolidation prompts the growth of institutions. In fact, this will likely create opportunities for more nimble wealth-management providers. And if banks play the game right, that could be them.
