Investment Strategies
Private Banks Could Be Missing A Wealth Management "Sweet Spot" - McKinsey

Private banks risk overlooking the opportunity of a budding wealth “sweet spot,” comprising households with between $1 million and $10 million in investible assets – a sector which is expected to account for over 80 per cent of wealth management revenue by 2015, according to a new survey by McKinsey.
The firm’s 2011 Global Private Banking survey says this segment is one of the largest and fastest-growing growth prospects of the next decade, but many private banks are neglecting this sector. These “core millionaires” will also emerge as the most profitable segment of the wealth market, according to the study.
Although this sector currently makes up just 27 per cent of the typical private bank’s assets, McKinsey anticipates it will generate almost two-thirds of the asset growth in wealth management by 2015, as HNW clients consider turning to financial advisors “for the first time.”
This sector carries the potential to deliver revenue margins which are up to three times the average for the UHNW segment, and at a lower cost-to-serve, the firm said. Moreover, these clients produce a higher proportion of business within profitable deposit, lending and discretionary investment products than the UHNW segment.
However, accommodating this sector will require a “fundamental shift” in how many institutions provide private banking services, including:
- Developing an integrated investment and banking experience that “feels customized,” but offers standardized packages of services;
- Solutions for specific segments of the “core millionaire” market, and;
- The implementation of a “disciplined and profitable service model.”
In one example of a bank pursuing this client segment, JP Morgan said recently it would add 750 new Chase Private Client locations this year and hire hundreds of bankers and advisors, as it targets mass affluent customers in a profitability drive.
JP Morgan indicated a more segmented approach to consumer banking in its latest investor day presentation, highlighting the profitability of higher-end customers and the opportunities in this space. The Chase Private Client subsidiary was launched in 2007 and was aimed at customers with at least $500,000 in investable assets.
Meanwhile, Bank of America last year increased the number of Merrill Edge financial solutions advisors to more than 1,200, hitting a target it has set itself of doubling the number of such advisors in 2011. The hiring goal was part of a wider strategic intiative to increase the bank's product and service offering to its "preferred clients".