Banks need to shape up in order to better compete with online brokerage firms for mass affluent clients, according to a new report from independent research and advisory firm Aite Group.
Current bank strategies are falling short in luring the mass affluent customer, or clients with investment assets between the $100,000 and $1 million range, according to the report. That has resulted in North American banks holding just 15% of mass affluent investors’ non-qualified investment holdings. While those banks suffered net outflows in 2009, online brokers gained 1% in market share from banks and wirehouses.
Aite’s report, which was released on Monday, is based on interviews conducted in the fourth quarter with more than 20 executives from 19 of the top 100 banks in North America and broker-dealers associated with them.
“U.S. banks must consider re-evaluating their mass-affluent offer in order to retain assets in the short term and position themselves to grow market share in this segment over the long term,” said Aite Group Senior Analyst Sophie Schmitt, who wrote the report.
To better reach the mass affluent investor, banks must build offerings specifically for them instead of relying on the brokerage business model, according to the report.
Of the U.S. banks, only Bank of America’s Merrill Edge provides a combination of branch, online and phone services, according to the report. That service, launched earlier this month, provides tiered charges for trading versus in-person advice.
North American banks can also look to their Canadian neighbors for tips on reaching the mass affluent, the report said. Those banks have had better cross-selling success by offering complementary online and full branch services. The Canadian banks have also more consistently targeted the mass affluent market over the last 10 years, according to Aite Group.
Banks can increase their market share with the mass affluent population by offering more than just a relationship with a manager or advisor, according to the report.
Instead, banks can offer multiple ways of serving those customers, Aite Group suggests. That could include having a leader or team dedicated to those customers and providing certain products and services for them; diversifying the ways they provide products and services; spending more time understanding what drives the mass affluent behavior; and having more efficient in person services.