An Independent Amex Financial Advisors Group Will Flourish

Contributing Editor

3 February 2005

The recent announcement from American Express that it plans to spin off its American Express Financial Advisors group is likely to be a good move for AEFA, according to a report from Forrester, the US-based research consultancy. But only if it targets the mass affluent market with a clear strategy. An independent AEFA will give the firm good access to capital and it will not have to compete with other divisions of Amex for corporate investment dollars. But the firm needs to invest to take advantage of certain trends in the US financial services sector, argues Forrester. The mass affluent baby boomer market is where AEFA needs to aim its efforts. This group is becoming increasingly prevalent and active. Research from Forrester says that 60 per cent of the people with more than $100,000 in investable assets who retired in the past year have a financial advisor. But only 44 per cent of working baby boomers with more than $100,000 in assets have an advisor. As 12 million mass affluent baby boomers hit retirement age during the next 15 years, the demand for professional financial advice will grow quickly and steadily. Forrester says AEFA is in an excellent position to serve this mass affluent market. It argues that too many of the big brokerages like Smith Barney are targeting millionaire households—“ten dogs chasing one bone.” But few are tailor making their services to the mass affluent market. Mass affluent households value in-person financial planning, especially for retirement. And financial planning has been the cornerstone of AEFA for years. Fidelity, for example, continues to improve its retirement planning options for investors. And many of the full-service brokerages like Merrill are spending hundreds of millions of dollars each on broker workstation upgrades that will enable advisors to deliver better financial planning to customers. But making mass affluent advice profitable will require technological reinvention, argues Forrester. As competition raises the bar on financial advice, AEFA and other firms will find it challenging to serve less affluent groups profitably. The effective use of technology will drive profitability in this sector, says Forrester. “To make the process quicker and simpler for the mass-affluent market, AEFA must develop financial planning software that requires half the data entry, recommends specific financial products, and executes any recommended product purchases automatically,” said Forrester. The firms with the best integrated approach will also reap the rewards of the mass affluent market. “Financial planning is a multifaceted process, and the firm with the best-integrated planning suite will have a huge advantage in the mass-affluent advice war,” said Forrester.