The definition of the mass affluent is somewhat varied, particularly among financial institutions. The term typically refers to customers with investable assets greater than $200,000 USD with high mortgage amounts or net worth greater than $1,000,000 USD. This means that they will typically have transactional, investment, and borrowing needs that make their segment more lucrative to banks and credit unions.
In a decade when mass retail banking suffers greatly from subpar margins and slow loan growth in North America, the need to create and grow more profitable revenue streams is more acute than ever.
The current mass affluent opportunity in US and Canada is estimated at over 17 million households and the assets and incomes of the mass affluent group have increased slightly since 2010 according to the “Affluence in America” report by Nielsen.
The higher profitability of the mass affluent makes it an attractive target for banks and credit unions to zero in on.
The prospect of increasing share of wallet from this segment through wealth management services makes in an attractive strategy for two reasons, as outlined in a study by Deloitte. Firstly, the wealth business tends to have greater growth prospects, lower capital requirements, and a higher return on equity (ROE) than retail banking. Secondly, for banks who execute the strategy well, mass affluent customers can bring up to 80% or more of the net income generated by retail banks.
Success has been elusive.
Past attempts by retail banks to serve this segment have been largely unsuccessful. Banks have failed in assembling coherent journeys and solutions that cater to helping this group. Such journeys and solutions would entail relevancy and personalization of advice, how easy the advice can be accessed, and the types of investment products available.
In response, some retail banks have created a solution with premium brands to provide differentiated experiences in branches with niche services such as providing dedicated advisors and private investment councils. HSBC Advance, Wells Fargo Premier, and CIBC Imperial Service are examples of premium financial brands appealing to the mass affluent.
It has been a start; however, current solutions offered by banks miss the holistic journey of moving a customer along from standard banking products into wealth conversations. More often than not, banks haven’t been able to demonstrate sustainable execution on the wealth side to retain, increase, and profit effectively from the management of assets with the mass affluent.
What has complicated the execution of mass affluent strategies further is the migration to digital channels. This has created another chasm in their experience, with multi-channel transitions between financial advisors and digital channels. Many traditional, multi-channel banks offering well established premier type programs face-to-face struggle with the question of how to translate the premier experience in the digital world. Financial institutions looking to improve their strategies with the mass affluent need to realize that there are multiple channels and devices part of a cohesive and rich experience and that these will deliver the outcomes customers expect.
There is no question that this market has been somewhat hard to serve as the comparatively small amounts of money under management relative to the high net worth counterparts have made it inefficient to offer these customers the personalized investment services that they both need and expect. This has caused the fragmented experience for the mass affluent and their move towards emergent boutique wealth firms that are better able to cater to their needs, low maintenance and passive asset classes such as ETFs, do-it-yourself investing via digital brokerages and robo-advisors.
Needs and expectations are moving on.
Today’s mass affluent lifestyle has been tinted by an age of digital devices, global travel, disintermediation of financial insights, ubiquitous access to information, instant gratification enabled by social media, and warp speed in both work and life. Deloitte re-defines this segment as the Rewired Investor, who also starts with and relies on the wisdom of their tribe (friends and colleagues), while seeking opinions beyond financial advisors.
Their financial status, lifestyle choices, and increasingly mobile banking activity could make Rewired Investors more vulnerable to security breaches of personal or financial information. Security and privacy are therefore paramount. Influenced by their experiences with Google and Amazon, Rewired Investors furthermore no longer want to be treated as part of a segment but instead as unique individuals with specific goals and preferences. They expect to receive advice tailored to their unique circumstances. This leaves room to reassess where financial institutions should go from here to regain market share and diversify their revenue streams with today’s mass affluent group, also known as Rewired Investors.
Asia and Europe have been leading the pack in terms of innovation with this group. For example, Credit Agricole in France took the mass affluent experience one step further and opened a purely digital bank. Since 2009, Credit Agricole has specifically targeted and served the mass affluent with BforBank. Under its tagline, “Mon bank, c’est moi,” which translates to “My dear bank, it’s me,” BforBank appeals to the needs of the mass affluent with personalization and individualization. This has otherwise been difficult to deliver in cost-efficient models in a branch structure, as discussed. The bank today offers full services from traditional accounts, mortgage and loan credits, insurance, and a digital brokerage, attracting over 220,000 customers as of 2018 and an estimated $5B+ in assets to date.
Another example is BBVA Wealth Solutions. With a strong focus on today’s mass affluent across continents, BBVA redesigned its investment solutions with a high-touch digital approach. In 2018, BBVA launched SmartPath Digital Portfolios, which offers simplified, packaged investment choices adaptable to personalized risk profiles and time horizons, all at a competitive annual fee of 0.75%. What’s intriguing about their approach is the evolution to a digital-first business model through aggregation of FinTech and investing product solutions. The aggregation into a coherent and relevant digital client journey helps investors within the mass affluent segment effectively manage and grow their wealth.
Time to make advances through the latest technologies.
The emergence of FinTech providers is offering inspiration and opportunity for financial institutions to regain market share and grow in the mass affluent segment. In fact, a 2018 report by Merril Edge shows that in the next five years, 74% of mass affluent Americans expect that the investment advice they receive will be primarily via digital channels, with mobile being the norm (69%).
The “platforming” of digital banking and digital wealth technologies enable such digital-first business models to help banks cross the chasm between retail and wealth through aggregation and personalization of experience from advice, interactions, and products.
One industry-leading platform that we work with at aequilibrium is Backbase. The platforming of digital banking through a platform like Backbase means that rather than creating digital business functions for each channel, one can develop once and deploy many times across any device and channel via a central hub, dramatically reducing the cost to serve. Moreover, both retail and wealth can be operated from this same technology solution, which orchestrates customer interactions across all touchpoints consistently and enables continuous wealth product innovation.
With our savviness to scout the world for best practices and bring pragmatic innovations to financial institutions in North America, we also discovered PushFor which revolutionizes premium secure content distribution and takes the mass affluent mobile experience to new heights. With security at the forefront, unstructured content seeing exponential growth, and traditional content distribution platforms proving inefficient, PushFor opens up a realm of possibilities for banks to engage, differentiate, and distribute content including statements, financial plans, estate plans, and insurance policies via mobile.
The mass affluent segment is growing, both in value and market volume. The retail banking sector, more than ever, has the opportunity to capitalize on the profitability of this group, and to help provide advice, products, and solutions for their customers through planning and technology. At aequilibrium, we are here to support your bank or credit union’s journey in growing your mass affluent business. Get in touch with aequilibrium to get started.