U.S. and Canadian banks say developing mass affluent wealth management business is a top priority, but they’re not doing enough about it, says a recent report from Aite Group. Most banks are focusing their efforts on cross-selling brokerage services to their banking clients, but that hasn’t stopped the flow of mass affluent assets to online brokerage platforms.
"Banks need to look at the mass affluent client as more than just an investable assets figure that conveniently fits the brokerage business model," said Aite analyst Sophie Schmitt, commenting on the report, which surveyed U.S. wealth management executives and is slated for release as early as next Monday.
A summary of the research, a survey conducted in the fourth quarter of 2010 of 19 of the top 100 banks in the U.S. and Canada, was reviewed by Registered Rep. The banks surveyed included bank-affiliated broker dealers though Aite declined to provide specific names, citing anonymity. The Boston-based research company said the aim was to ascertain how bank executives are working with mass affluent customers, typically those holding between $100,000 and $1million in investable assets.
In an earlier survey, Aite calculated that wirehouses manage 38 percent of U.S. retail investor assets, which totaled some $12.5 trillion in 2009. That's down from 39 percent in 2008. Online brokerages, meanwhile, grabbed an additional point of market share, with 17 percent of retail investor assets in 2009, up from 16 percent in 2008.
Schmitt notes that despite the high priority placed on expanding mass affluent business at many banks, close to half of the banks polled do not have a dedicated organizational focus on customers in the segment. Further, more than half of these banks provide the same standard offer as wirehouse and independent brokerages: access to a financial advisor who seeks to establish a long-term relationship based on managing or selling investments. But that is still not sufficient enough for the banks to position and differentiate themselves for growth in the competitive mass affluent wealth management space, Aite says.
Schmitt told Registered Rep. that while banks have been “mimicking” wirehouses they have not been successful at it. “They lack the brand that wirehouses have and, therefore, are typically not the first choice for investing. Mass affluent clients who actually want to pay more per trade to receive expert advice will go to firms that are well known for investments,” she said.
“The FA in the bank branch is the one differentiating feature of their model but it has not worked because the branch does not generate enough wealthy clients,” added Schmitt.
The survey paints a fairly dismal picture of many banks, eager, on one hand, to gain market share, but poorly prepared to make the inroads into wealth management. All told, about one in three of North America banks interviewed offer a bank-branded mass affluent product strongly oriented towards so-called holistic, or comprehensive advice, encompassing banking, investments and trust services. However, only one bank, Bank of America, was identified in the survey offering this same holistic advice across multiple channels—that is, at the branch, via online and phone.
Aite notes that Bank of America's approach permits investors to benefit from both low trading costs, along with access to more expensive banking and investment advice. The summary does not spell it out, but Aite is clearly referring to Bank of America's online brokerage unit, Merrill Edge, operated by its Merrill Lynch affiliate. Aimed at investors with between $50,000 and $250,000, Merrill Edge provides an advisory call center along with a self-directed online platform. Investors with assets in excess of $250,000 are served by Merrill's traditional brokerage services and trust business.
Still, despite the poor assessment of the banks in the wealth management space, about half of the 19 U.S. banks Aite surveyed are making some progress—enhancing their online capabilities. The rest remain on the sidelines. They "remain unconvinced of the criticality of the direct channels for delivering advice to the mass affluent, believing, instead, that providing in-person advice is the way to differentiate their offer from competing online brokerage firms," according to analyst Schmitt.
The Canadian banks in the survey outshone their U.S. counterparts. Aite notes, however, that the banks in Canada had a longer history of providing investment advice to the mass affluent. Not surprisingly, these banks, champions of online self-directed services, have had greater success with their cross-selling than U.S. banks.