The World's Banks Line Up To Offer Private Banking To The Poor Rich

Jason Gorringe, Tax-news.com, London

10 October 2000

The 'poor rich' or 'mass affluent', people with between $100,000 and $500,000 to invest, have become the focus of a number of private banking initiatives over the last few weeks, as technology makes it economic for financial institutions to offer them personalised services which before would have been reserved for the truly wealthy. This sector of the market is also growing very rapidly, with numbers expected to reach 60m in Europe alone by 2005.

The banks also have an eye to the fact that the poor rich, who have traditionally been some of their most profitable customers, tending to leave relatively large sums on deposit in low-interest accounts, are increasingly active in managing their own money and investments, and are targeted by an ever-wider range of competitors, especially through the Internet.

Among recent announcements of new services for the poor rich is an online bank planned by Merrill Lynch, the US investment bank, and HSBC, the UK-based group with retail operations in Asia and the Americas as well as Europe. They are investing $500m each in an online bank that is expected to open in the UK, Canada and Australia this year before launching in Germany and Japan next year. Its target will be the new breed of 'diy' investors - people who are relatively sophisticated and need little help from advisers. Those with more than $100,000 to invest will be offered access to the two partners' equity research, interactive educational materials and online tools to help them construct their own portfolios.

The package will also include integrated bank and broking accounts, credit and debit cards, and a range of investment funds offering the best products in 10 sectors. There will also be back-up from call centres and a scattering of 'advice centres' which are branches in all but name. Think of them as the equivalent of executive lounges at airports.

Last month Credit Suisse, the Swiss financial services group, announced its plans for an online bank offering a similar range of services to a different group among the mass affluent - what it calls the "advice-seekers". These include "validators" - investors who make up their own minds but like to discuss their conclusions - and "comfort-seekers" who want to be shown options before making a decision. Customers will be expected to place at least $50,000 50,000 of assets under management. The online content will include market data, research, access to share offerings through Credit Suisse's investment banking arm and personalised reporting. It will also give access to Fund Lab, the group's online mutual fund supermarket, which includes rival fund managers' products.

Royal Bank of Scotland's equivalent service has a minimum of £75,000 ($110,000) entry level and will be marketed under the label of NatWest Private Banking through existing bank branches. That seems a strange marketing decision, given that NatWest doesn't have a particularly ritzy reputation: it's like putting Asprey's kiosks into branches of MacDonalds.

Key to all these initiatives is technology: the cost of fielding an advice call from a customer has plummeted in recent years as call centres have evolved; while automated brokerage and portfolio management services are now two a penny. Thus a bank can deliver a complete cross-product offering to a client using readily available components, supplemented in the case of the poor rich by personal advice. But it will be 'methode champenoise' rather than champagne!

 

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