Bank, brokerages, and insurance companies are all targeting the same mass-affluent investor market, and technology could give banks an edge in this increasingly crowded market, SunGard Data Systems Inc. chief executive Cristobal Conde said.
However, Mr. Conde and two analysts said few banks have developed effective strategies for this segment and will face increasing competition from other financial services providers.
"People in brokerage are seeing wealth management as a growth opportunity. People in banking are seeing wealth management as a growth opportunity. People in insurance, same thing," Mr. Conde said in an interview last week. "It's becoming an arms race, and technology is the differentiator."
SunGard, of Wayne, Pa., was at the Securities Industry and Financial Markets Association's technology conference in New York, where it announced enhancements to its WealthStation platform, an online service that includes several tools for managing clients' investments.
As he described the bankers, brokers, and insurers converging on the mass affluent, Mr. Conde conjured the image of three baseball players converging under a pop fly, all looking at the ball and ignoring each other. "In fact, all three industries are going after the same thing."
"When people think about competing, they think about competing with people in their own industry," Mr. Conde said. "There are not that many banks going after the mass affluent."
He defined the mass-affluent market as households with $100,000 to $300,000 of investable assets.
Celent LLC of Boston, the financial research arm of Marsh & McLennan Cos. Inc.'s Oliver Wyman consulting unit, defines the mass affluent differently, as households with net worth between $250,000 and $2 million. Robert J. Ellis, the senior vice president of Celent's wealth management group, said the firm uses that definition because of U.S. households' propensity to draw on assets such as houses and collectibles to provide liquidity for other investments.
Viewed in that perspective, the market is huge, comprising 31% of American households that control 47% of the nation's assets, Mr. Ellis said.
Though bankers have not found an approach to pursue that market effectively, neither have competitors in adjacent industries, Mr. Ellis said. "The good news is that no one has stolen a march on them. The market is still out there if they want to get their act together."
When it comes to the high-net-worth segment, or the ultra-high-net-worth, it is easy to identify market leaders, Mr. Ellis said, citing Northern Trust and Wilmington Trust as examples. But it is harder to identify standouts in the mass-affluent segment. "When you ask me who's the best for mass affluent, I'm at a loss to tell you," he said.
In many cases, the banks already have much of the information they need about these customers, he said. "People treat them as a monolithic group, but they're not."
He argued that banks could find a number of niches to segment the mass affluent into subsegments that they could focus on, such as households in the wealth-accumulation phase versus the distribution phase of life, advice-dependent versus self-guided, risk-averse versus risk-tolerant, and so on.
If a bank targeted, for instance, entrepreneurs in the accumulation phase, it could then pull together the collection of products and services to appeal to that segment, Mr. Ellis said.
"Technology also allows driving products and capabilities down-market," he said, citing separately managed accounts as an example. These accounts, essentially personalized portfolios tailored to an individual investor's needs, were originally managed exclusively for the high-net-worth market.
Technology enables advisers in banks to run such accounts for mass-affluent clients, and the vendors in many cases are companies that the banks already work with, such as the CheckFree unit of Fiserv Inc., the Bisys unit of Citigroup Inc., or the Pershing unit of Bank of New York Mellon Corp.
Robert B. Hedges Jr., the managing partner of Mercatus LLC, a Boston consulting firm, said banks face a challenge to their thinking in trying to bring the one-to-one private banking relationship for a customer with $2 million of assets or more to the mass affluent.
"As a competitor, you must leverage technology in order to make the economics work, even if you would prefer to do the business in a custom, in-person way," he said. "Customers in this space will have hundreds of thousands of dollars of assets in a 401(k) plan, and it will all be call-center and Web delivery."
Banks may not necessarily be best suited to meet the needs of the mass affluent, Mr. Hedges said. For instance, insurers can make a strong case that their annuities and similar products are well suited for those in the distribution phase of their lives, he said.
Even so, banks might well counter that their online services could help those retirees manage their money more effectively and stay on their budgets, Mr. Hedges said. "The application of technology to wealth management is the ultimate market segmentation question."
