Last year, when - said that even the lower reaches of the high net worth market (“millionaires next door”) are underserved, given that rising cost pressures are prompting banks to raise their minimums. (View the original report here.)
The voices of those commenting on the topic are getting louder. For example, management consultancy explained in an article here that Asia’s mass-affluent client segment deserves more love and attention from wealth management businesses.
Mind the gap
If the financial market has a binary option of retail (highly digital, affordable and plain vanilla) at one end, and private banking (complex offerings, bespoke investments, concierge services, lots of in-person RM contact, structuring advice, etc) on the other, this means that a person on their way up the wealth scale faces a sudden jump from one level to a different one. There is no “in-between.” This is a jarring experience when onboarding, different scrutiny and complete changes in offerings are involved.
Also, given that millions of people will not make it to the HNW level – or even want to – they are missing out if all they can get is retail. The same happens if an HNW individual becomes poorer and is “relegated” back down to retail, instead of being offered something else. Such options also reduce the frictions and client attrition that can result.
Citi Ventures said there’s a clear gap in the market, ranging from lower-tier HNW individuals to the mass-affluent space.
“Despite currently holding almost $55 trillion in wealth – roughly double the wealth held by UHNWIs – lower-tier HNWIs are being underserved in terms of the financial products they have access to,” Citi Ventures said. “Often lumped together with the mass affluent segment ($100,000 to $1 million in liquid assets), these lower-tier millionaires tend to be offered stock- and bond-based investment products and related margin loans because the retail wealth managers who service them lack access to more sophisticated products.”
Citi Ventures continued: “While the more enterprising members of this group may cobble together access to certain alternative investment products on their own or through platforms such as iCapital (a Citi Ventures portfolio company), this “hack” does not quite match what the wealthier segments are able to obtain.”
It appears that, while a number of banks and other firms – some using modern technology – seek to serve the MA market, it is a challenging field, requiring firms to master what, in management-speak, is called “mass customization.”
The opportunity
Getting the mass-affluent market right is lucrative: “With nearly $27 trillion in assets – almost 32 per cent of total HNWI wealth – and a large and increasing population base, the affluent segment dominates a sizeable chunk of the wealth pyramid,” Capgemini said in its World Wealth Report last year.
The consultancy even came up with the idea of “wealth-as-a-service” (WaaS) to explain how the mass-affluent market can be served.
“A growing financial services (FS) business model is Banking-as-a-Service. FS firms leverage open application programming interfaces (APIs) to embed regulated products within the platform of an FS or non-FS third party. Likewise, wealth-as-a-service can enable WM firms to package core capabilities into modules and embed them with third-party partners, such as retail banks or independent advisors,” it said.
Mass-affluent growth outpaces
“Globally, the middle class is advancing in size and financial clout and is driving the growth of the affluent wealth band, Gareth Wilson, executive vice president, head of UK banking and capital markets, Capgemini, told this news service.
In the US alone, $72.6 trillion in assets will likely be transferred to children and successors by 2045 as part of “the great wealth transfer,” he noted. In the UK, this transfer will likely cover £5.5 trillion (more than $6.8 trillion) over the next 30 years.
“Despite considerable revenue potential, wealth management firms are yet to find their way in terms of how best to address this affluent segment profitably,” Wilson continued.
But given the sheer scale of the financial sums involved, firms are starting to rethink their segment strategies.
Wilson said , a digital bank and part of the REYL Intesa Sanpaolo group. Alpian was launched and incubated by Reyl in 2020. At that time, target clients were those with investible assets ranging from SFr100,000 ($109,294) to SFr1.0 million, a field covering more than 2.6 million people in the Alpine state. In 2021, the former Alpian CEO explained that Alpian was focused on the challenge that many Swiss/other clients had in making the step from retail to private banking, because there was a lack of something in between – the “mass-affluent” space.
Time with clients
TIFIN’s Pettman said that one difficulty for delivering advice at scale is the fact that RMs can only deal with so many clients. In the US, for example, the requires advisors to have a meeting at least once a year with a client. They don’t necessarily have to be in person, or last an hour, but that imposes a cap on the RM/client ratio.
“Technology is going to play a major part” in fixing this sort of issue, Wilson said.
But while there is work being done – the UBS example is one – there remain problems, as Citigroup, as previously mentioned, noted.
One Geneva-based private bank, for example, told this publication that it had shut its doors to such clients, sadly, because they weren’t profitable. Rising regulations and technology costs mean that the minimums of investible assets keep rising. Even the $1 million minimum that Capgemini still uses (it has used it for over 20 years) to define “high net worth” looks seriously out of date, given the ravages of inflation.