Bankers Less Keen On Mass Affluent Clients

by Carla Johnson, Investors Offshore, London

29 November 2001

The emergence of the 'mass affluent' has been one of the most noticeable features of the bull market that came to an end last year. Suddenly bankers' eyes were fixed on a group of several million newly-wealthy individuals spawned by commercial or investment success during the 1990s. Now, the pressures of a slumping market have raised doubts among wealth managers at banks, brokerages, and advisory firms about whether cultivating the so-called "mass affluent" is worthwhile.

In a declining market, the not-quite-rich are demanding more of the expensive advice that brokers and advisers had tried to reserve for their truly wealthy clients. Though the definition of 'mass affluent' is not standardized, most agree that the group includes people with liquid assets of at least $100,000 or total net worth of at least $500,000. The upper wealth limit is usually set at $1 million, or even $2 million, of investible assets or total net worth.

The logic of tending to better-off young people remains the same: younger people among the mass affluent have the capacity to grow into the very wealthy category, becoming the sort of clients everyone covets. From the perspective of an adviser who is trying to start or grow a wealth management service, the client with $10m already has an adviser, so the hunt has to start with smaller fish.

However, the intense competition brought about by new entrants into the field, as well as shrinking profits, will force many wealth managers either to focus on their wealthiest clients or risk going out of business. Another factor is that the newly wealthy may be more fickle clients than in the past. A recent study by the accounting firm PricewaterhouseCoopers said that one of the biggest problems wealth managers will face in coming years is client retention, since very few of these customers appear content to stay with their current adviser.

The study, which was published Nov. 14, found client loyalty abating among the mass affluent, which it defined as those with $100,000 to $500,000 of assets. Of the 125 people interviewed for the study, 43% were considering changing their financial advisers, and 31% only chose to stay with their advisers because of a "lack of alternatives."

Still, some commentators are very clear about the best strategy for advisers: David Ross Palmer, a high-net-worth analyst at LoBue Associates in Northbrook, Ill., stresses that less affluent clients are an adviser's best source of long-term relationships. Dropping them is "the dumbest possible marketing strategy that any human could come up with," he says.

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