While large North American banks have set developing wealth management capabilities for the mass affluent as a priority, they are not doing enough to capture this segment, according to a study by Aite Group. Aite estimates that North American banks have captured less than 15 per cent of mass-affluent investors' non-qualified investments.
The survey, which queried 20 executives at 19 of the top 100 North American Banks and their affiliated broker/dealers, found that none have more than 40 per cent penetration of investment products among their mass‐affluent customer base.
The mass affluent are defined as those with $100,000-$1 million in investable assets. The survey includes 11 of the top North American banks.
“Banks have an opportunity to differentiate themselves in the mass-affluent space--only they can provide clients with a full set of tools for managing short-term cash needs and planning for long-term goals,” Sophie Schmitt, senior analyst and author of the report, said.
Banks need to compete with online brokerages, which have done a better job in capturing the mass affluent, according to Aite. They need to enhance self‐directed investing capabilities, for example. Following the financial crisis, investors have been looking for more control over their finances.
In addition online brokerages offer bank capabilities, allowing customers to access cash through ATMs, pay bills online, and write checks from their bank and brokerage accounts.
Online brokerages are also rolling out products aimed at capturing affluent investors. As previously reported by FWR, Fidelity Investments and E*Trade each rolled out last month unified managed accounts, favored by affluent investors for their tax efficiencies.
The minimum investment for E*Trade’s UMA is $250,000. It will be co-advised by Lockwood Advisors. The account minimum for Fidelity’s UMA is $200,000.
About one-third of banks surveyed do not offer a differentiated service for the mass affluent and almost half lack dedicated leadership for this group of investors. Yet 60 per cent view the mass affluent as high (in the top five) in terms of initiatives.
Only one-third of North American banks interviewed provide a bank branded offering that is based on holistic (banking, investment and trust) advice.
Aite cited Bank of America’s Merrill Edge as the only bank platform for the mass affluent that delivers advice across multiple channels - branch, phone and online.
While half of US banks surveyed are enhancing online capabilities, the other half believe that providing in person advice is the way to differentiate themselves from online brokerage firms.
Canadian banks outshone their US peers in the survey. Aite pointed out that they have a longer history of providing investment advice to the mass affluent and have had greater success with cross selling efforts.
This is due in no small part to Canadian banks' acceptance of online self directed offerings which they view as complementary to full service offerings at banks, according to Aite.