Financial institutions need a strong all-around hand that certainly includes technology, but also sports the right business strategy, organisational design and operational processes to address the inherent challenges in planning, manufacturing and distributing wealth management solutions for the mass affluent -- through good times and bad. The rising tide of the economic boom raised all boats, highlighting the mass affluent (those with investable assets ranging from US$100,000 to US$1 million) as an attractive market opportunity beyond the traditional focus on ultra-high net worth (UHNW) and high net worth (HNW) individuals. Eager for growth, 'everyone' began targeting the mass affluent -- private bankers moving down market and retail banks moving up. Firms knew cost would be an issue: Traditional methods for serving the super wealthy were simply not an affordable way to serve the mass affluent. Many companies thought technology was the answer -- but quickly found that it was actually only part of a multifaceted answer to this rather elusive opportunity. As times got tough, many wealth management initiatives aimed at the mass affluent were abandoned: - Lloyds TSB invested GBP 100 million in Create, a wealth management service for the mass affluent, which it launched in October 2001 and then closed to new clients in April 2002, after just six months of operation.1
- Credit Suisse First Boston (CSFB) acquired DLJdirect as part of its purchase of Donaldson, Lufkin & Jenrette Inc. in the fall of 2000, then sold the unit in November 2001.2
- In 2000, HSBC Group and Merrill Lynch launched a joint venture targeting mass affluent customers with a mix of banking and brokerage services -- but Merrill Lynch exited the high-profile venture in May 2002 after investing approximately US$200 million.3
Given the worldwide wealth contraction of late, some are wondering whether the mass affluent are still a worthwhile target for wealth management services. Based on the full revenue potential from a comprehensive set of wealth management services, the most attractive segments of this market (the affluent and young affluent) still represent a US$139 billion revenue opportunity in the U.S. alone.4,5 Thus, the question is not whether to pursue but, rather, how to pursue this market opportunity most profitably. Based on IBM Institute for Business Value analysis of various forays into the wealth management market and IBM Business Consulting Services' work with clients that are planning or have deployed mass affluent offerings, we have concluded that the economic downturn is not the sole reason for lackluster results with the mass affluent. Instead, execution challenges, ranging from strategy to organisational design to operational effectiveness, are the chief culprits, hampering -- and sometimes even halting -- companies' wealth management initiatives. To learn more about these challenges and how they can be addressed and managed, download the pdf file at the top of this page. |
