A recent article in BAI’s online Banking Strategies Retail Delivery Insights on the mass affluent segment highlights opportunities available to banks and suggests some clear action priorities. The article discusses a survey of customers with investable assets from $100,000 to $1 Million.

The Banks’ Mass Affluent Opportunity
As suggested by the survey and as we have discussed in earlier newsletters and highlighted in our client work, this segment is highly attractive to most banks and should be considered part of a bank’s franchise. Some of the key results from the survey include:

 

1.  Eighty-six percent of respondents say they have a relationship with their bank while 51 percent point to a bank as their main financial provider (vs. 18 percent for a broker).

 

Note: This indicates that these customers put their bank in a prized position versus competitors, one that most banks have failed to exploit.

 

2.  In particular, those with less than $500K to invest have the greatest affinity with banks, with 84 percent citing banks as their main financial provider.

 

Note: Many “smaller” customers demonstrate loyalty and some may lack the sophistication to look outside their banks to other providers. While many banks are pursuing larger asset accounts, the smaller investor should be the core target for many banks, in particular regional players and below. Obviously, the economics of servicing this segment require a targeted product package and a cost-effective sales and service process.

 

3.  Thirty-eight percent of respondents view retirement assets as their most important financial asset; not incidentally, close to 30 percent of the mass affluent are retired.

 

Note: Many banks have done a poor to miserable job in working with customers in the retirement area. We all know about the graying of America, but how much priority have banks placed on providing product solutions aimed at this area? Given their age and financial wherewithal, many within the mass affluent customer set are largely “post-lending” in their needs; yet, at least until recent months, banks often emphasized the commodity-like mortgage or HELOC products with few effectively addressing the investment, asset protection, and estate needs of this group. Of course, loans are what many banks are most comfortable selling, even if it is not what the customer considers critical.

 

4.  Close to 40 percent of respondents underscore the increasing impact of the Internet, saying that they obtain financial information from web sites, viewing them as their preferred information source.

 

Note: It is unlikely that many mass affluent customers are relying on bank websites for the advice and counsel they require. Many banks have failed to anticipate the needs of the self-directed customer, despite the growth in this sub-segment. In addition, as noted above, the economics of this business should be driving the banks to emphasize the Internet. Remarkably, most banks lack a detailed bank-wide delivery strategy, one that places different emphasis on channels based upon customer preferences and trends. Over the next five years, where does branch growth stand versus ATMs versus Internet development versus mobile banking versus other technologies we can only guess at?

 

I received an email the other day asking if we knew of investment sales being offered by experts available through online video conferencing. While the technology to do this has improved and similar approaches are used outside financial services, few banks have even considered how to employ this approach. This is the type of innovation which many customers want and for which they may go elsewhere to obtain.

 

Cutting Across Silos and Channels is a Mandate Not an Option
Let’s consider the needs of the mass affluent client type:

 

•  For products, requirements include near and longer term investments, insurance, retirement planning, wealth management, and estate planning as well as lending. In many instances, the mass affluent is also a business owner; given that, many of them need assistance in business transition. The above requires the involvement of bank groups ranging from retail and small business to cash management and deposits, personal trust, private banking and wealth management, insurance, and tax and estate planning, among others.

 

How many banks are able to provide a cross-bank product solution that addresses complex product needs? How many banks even possess the product/service capabilities mentioned above? In some cases, banks are failing to play well internally. In other instances in which they lack product/service capabilities (for example, retirement and estate planning), management needs to determine how to respond to client requirements (build/buy/borrow). Some banks appear to overlook the customer needs, seemingly hoping those needs will go away (they do not). Instead, that aspect of the customer’s business disappears, going to other providers.

 

•  Related to channels: the mass affluent continues to access the branch, but clearly, the branch is not enough. Many banks lack a robust Internet offer, one that offers advice and research rather than product pitches. The result is that the customer simply clicks away to E*Trade, Merrill, or literally dozens of other sites. The point is that all clients, including mass affluent, require multi-channel access. They want to have access to the channels they want when they want them. Banks need to look to innovators such as USAA as well as web-centric providers for best practice. They also need to make some tough choices about delivery-related investment dollars and third-party partnership strategies.

 

Concluding Thought
The mass affluent segment offers a treasure trove for many banks: a strong and growing customer base, largely loyal to banks, looking for help while willing to self-serve, fee generators, etc. If banks fail to “own” this segment, they risk further erosion in profit pools and available growth paths. A handful of segments “belong” to banks for the taking, small business and the mass affluent among them. Particularly today, banks cannot afford to lose share in these segments.