There is a large, growing, and mostly untapped market in personalized, one-stop, wealth management for affluent households. The market resembles traditional private banking, but the customer group is vastly larger, more diverse, and more technology-oriented.
The converging needs of new-wealth households and the old-wealth clients that private banks traditionally serve have created this market, which is at least 10 times the size of old-style private banking and has the potential to be similarly profitable. U.S. households with assets above $1 million (excluding home equity) have doubled since 1990, and experts expect at least 10% annual growth in this category for the next five to 10 years as baby boomers continue to accumulate wealth.
With new wealth comes a tangle of issues such as investment management, liquidity management, retirement planning, and estate planning. To unsnarl this complexity, many affluent households seek one-stop service for a broad set of financial products - investments, loans, deposits, etc. - and advice on selecting and managing these instruments. They also demand technology-intensive support like Internet access and 24/7 call centers.
When you count households with assets, excluding their homes, of $500,000 to $1 million, you are looking at more than 15 million U.S. households that are candidates to buy wealth management services.
This opportunity - though attractive - is quite challenging. As a result, few banks are effectively pursuing it. Four elements are especially difficult:
- Personnel. Skilled, well-compensated relationship managers are crucial to wealth management. How do you hire and train enough of them to serve an expanding customer base? How do you contain costs, especially for customers with fewer assets than those of traditional private banking clients?
- Backup. Internet access and 24/7 support are an entry requirement in the new wealth management game. How do you meet this need, given that private banking - as a relationship-oriented business - has traditionally lacked these skills and technology systems?
- Adaptability. Time-to-market is crucial because early leaders will tend to retain market share - provided they can adapt to market changes. How do you create speed and agility in a business where slow-and-steady has been valued more than fast-and-responsive?
- Flexibility and personalization. A wealth management offering must be specific to individual client needs. How do you structure funds, interest rates, fees, and payment terms to meet client preferences? And how do you keep up with changing markets and evolving product offerings?
The banks that tap the wealth management opportunity will have a variety of capabilities - efficient operations, human resource skills to identify and train outstanding relationship managers, and a culture that fosters speed and agility. Most crucially, their technology will surmount the challenges that confound competitors.Technology will enhance relationship managers' productivity. It will give them instant access to customer information and streamline activities such as collecting customer information and devising investment recommendations. This will cut costs and leverage relationship managers over a larger customer base.
Technology is also crucial to meeting customer expectations for Internet access and 24/7 call center support. Clients will use the Internet or call centers to get account information, communicate with relationship managers, and initiate or approve transactions. The banks and other financial services firms that succeed will have deployed technology quickly and flexibly - so they get to market with personalized offerings before their competitors do.
Whether you're a retail or private bank, financial planner, or full-service or discount brokerage, you have only two choices if you are to seize this wealth-management opportunity: Achieve early success or watch customers migrate to competitors that are better prepared.
Mr. Koppel is vice president of product architecture at TenFold Financial Services of Salt Lake City, a provider of large-scale e-business applications for the financial industry and others. He is based in New York.
