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The mass affluent hold 43% of global wealth; they need better services.

Aug 26, 2013

The mass affluent are underserved

The mass affluent hold the largest share of the global wealth, even more than high net worth individuals, making them the largest wealth management segment. Yet, a significant number of them are underserved. Indeed, the mass affluent are well-off, but not enough to qualify for private banking services. As a result, they are often offered the standard investment products and services intended for the retail market. Acknowledging their needs and specificities will boost cross-selling opportunities and tap into this market with high investment potential.

344 million potential customers

The mass affluent are individuals with a significant amount of wealth, but not enough to be above most material considerations. This segment is thus defined as having between $100,000 and $1m in wealth (i.e. financial and non-financial assets minus debts). High net worth individuals (HNWIs) are those who own more than $1m in wealth.

According to the last Global Wealth Databook by Crédit Suisse,1 the mass affluent represent 344 million people, or 7.5% of the number of adults worldwide (Figure 1). However, they own 43.1% of the global wealth, more than the HNWIs (39.3%). The majority of them lives in Europe (38%), followed by Asia-Pacific (28%) and North America (23%).

Global Wealth distribution

 

Understanding the mass affluent

The mass affluent have diverse profiles and needs. A young entrepreneur who is earning ‘fast money’ and wants to invest it for further growth will not have the same needs as a 60 year old mass affluent who is concerned about his retirement plan. Most mass affluent customers have been professionally active for some time, have the capacity to save money and will use those savings for clear life objectives. These goals may include retirement, security, lifestyle changes, major purchases or the education of their children.
 
A major need for mass affluent clients is to optimize their return on savings in terms of risk (size, likelihood, impact, and significance), their objectives and their savings’ timeline, as well as their existing assets and liabilities. In addition, capital protection remains an important factor, at least compared to HNWIs, whereas complex issues around real estates, inheritance or privately owned businesses are much less important than for high end customers.
 
It is also important to recognize that, partly because they are usually engaged in professional activities, they have views on their economic and financial environment and wish to see them taken into account. They have a tendency to seek money management advice, i.e. keep in control of their assets with the validation or advice from an expert.
 
Finally, a large fraction of the mass affluent is technology-savvy. Tablet and smartphone use among investors is growing rapidly, and clients increasingly expect a varied, integrated wealth management and brokerage multichannel experience.

Serving the mass affluent

Standard retail financial products are not what they are looking for. To tap into the vast amount of wealth held by the mass affluent, banks must offer them proper products and advisory services for which they are willing to pay.

This means engaging clients based on their real financial needs, and with a full, 360° knowledge of their aspirations. Financial products must take into account their objectives and risk profiles. Mass affluent’s goals are often well-defined (e.g., “I need to pay for my children’s education in 5 years”), as opposed to HNWIs who are served more on a “what should I do with my €5 million” basis. At the same time, each goal carries a different tolerance to risk. This means the investor requires multiple risk profiles, one for each goal. Each such risk profile should include at least two major components, yet often mixed together: the risk factors an investor is ready to accept and the type of risk they want to avoid.
 
Of course, asset or portfolio managers cannot build individual propositions for each mass-affluent client. The bank will therefore suggest model portfolios to their mass-affluent clients that will be built and optimized for major sub-segments of clients. However, the advisor (or the investor themselves, if the service is provided through the web) should be able to fine-tune, in a controlled manner, the investment proposition by adapting the model portfolio to the client's expectations.
 
The need to build cost-effective personal banking relationships also calls for highly automated processes as well as the elimination of silo-structured approaches to investment recommendations. This requires a common and integrated platform. Integrated platforms ensure compliance with regulations as well as clarity and transparency throughout the investment advisory process. In addition, an integrated platform can deliver a true multi-channel client experience.
 
Common tools and methodologies enable banks to engage their clients with a holistic and dedicated approach. Once the advisor understands the overall financial profile of her clients (risk profile, objectives, time horizons, assets and liabilities, views), the portfolio/asset manager is able to build a portfolio that will fit this profile, and the risk/compliance officer can ensure that risks are well understood and that the portfolio stays within agreed boundaries over time. 

From customers to clients

In conclusion, with 43% of the global wealth in their possession, the mass affluent deserve their name. Their choice of bank(s) depends largely on the quality of the planning and advices provided, and their confidence that their interests come before the bank's. Banks that elevate the status of the mass affluent from retail customers to clients with access to dedicated products and advisory services will gain a competitive edge.

 


  

1Global Wealth Databook 2012, Crédit Suisse Research Institute.

 

 

 

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