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Hunt For Mass-Affluent, HNW Clients Prompts New Models

Tom Burroughes, Group Editor , London, 3 February 2021

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The arrival of such an entity plays to the growth of the world’s mass-affluent sector, expected to reach more than 90 million people in 2023.

The launch late last year of a wealth management service that has described itself as “Netflix for wealth management” is testimony to how parts of the sector are automating as margin pressures bite.

Back in December, London-based Vestrata, a fintech company providing investment solutions, with C-suite figures from bulge-bracket banks such as JP Morgan and HSBC, was launched. It completed a $4 million funding round. Asked by WealthBriefing how it works, the group said its platform is “modular.” Advisors may choose to subscribe for one, some, or all of the Vestrata investment solutions. “From a revenue model perspective and with the ‘modular’ construct in mind, advisors ‘take what they need, and only pay for what they take’”, the firm said.

Tej Dosanjh, managing partner (UK) at Evolution Partners, told this publication that the arrival of such an entity plays to growth of the world’s mass-affluent sector, expected to reach more than 90 million people in 2023 from about 75 million now (defined as people with net worth of up to $1 million). This is a segment that has tested bankers for a while. Such clients are wealthy enough to attract business, but not so rich as to get too “bespoke”. This opens a big gap.

“In the traditional private bank model, this [mass-affluent] is an unprofitable sector with an approximate cost of around $50,000 to onboard and maintain but only generating $10,000 of income. They don’t need advice, are probably happy with a model portfolio and standard client reporting. The banks are of course aware of this,” Tej Dosanjh, who is managing partner (UK) at Evolution Partners

“Many see the solution as adopting platforms that automate much of the manual process, with a lower operational cost and greater use of digital and AI that support onboarding, KYC, portfolio construction and client reporting,” he continued. 

Vestrata said it will “deliver a suite of discretionary, advisory, alternatives and ESG investment solutions”. It is led by Mark Le Lievre, co-founder and CEO, who was previously global head of products and platforms at JP Morgan private bank and head of investment content at UBS Wealth Management. Other figures involved include Doug Wurth, chairman, who formerly led the international private bank and alternatives businesses at JP Morgan; Kim Lennen, chief technology officer, co-founder, and former CTO of JP Morgan Private Bank (Europe); Lea Blinoff, head of solutions, former MD at JP Morgan; Arun
Sinha, chief marketing officer, former CMO of JP Morgan Wealth Management; Eric Laget, chief legal officer, former in-house counsel at JP Morgan Asset Management; Tim Riseborough, chief financial officer, chief operating officer, former COO at HSBC Commercial Bank, and Sarah Newman, chief commercial officer, former head of investment products at Barclays Wealth Management.

“The easiest analogy to Vestrata’s business model is a B2B version of `Netflix for Wealth Management’,” the firm said, arguing that the streaming service has a deep and diverse content library; a platform driven by algorithms to set which content fits a client, and a distributed network of clients who access their content globally.  

WealthBriefing asked Vestrata about its revenue model. The firm said there is a standard fee schedule that includes a platform maintenance fee and platform modules fees (discretionary, advisory, alternatives, data lake and business intelligence). These are set at an annual fee depending on the platform module(s) subscribed to, it said. There are also “Solutions Module Fees” (discretionary, advisory and alternatives), which are also set at an annual fee for the investment solutions module(s) to which the advisor subscribes. Depending on the service, an additional fee is required based on assets serviced via the platform. 

“Our expectation is that advisors should fully recoup the costs in Year 1 from incremental revenues as a result of improved client engagement and retention, doing more business with existing clients, and acquisition of new clients and assets,” it said. 

Evolution Partners’ Dosanjh said such platforms have spotted an underserved space in the market. 

“There are innovators out there who have spotted this, built modular platforms to address specific process automation needs and happy to take on the mass affluent sector. The key challenge for incumbents include reputational risk off ‘off-boarding’ certain customers or sell to platform operators, not deemed profitable. That’s not a good look. Or they can deploy the automated technology under perhaps a separate brand and migrate them across from the core banking facility. This is still messy,” he said. 

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