The rise of the mass affluent
More people than ever have money to invest. To cater for them, banks have devised a new must-have -
It is tempting to think of bankers, those models of sobriety, as resistant to the vogue. But oh no. The sensible suits and toecaps serve only to disguise the most febrile of fashion victims. Banking is as susceptible to trend as any other business, and rather more so than most. The latest industry must-have is called "wealth management".
If private banking is travelling first class, wealth management is club class. You are satisfyingly segregated from the mob in the back, but the champagne is non-vintage and the attention less lavish than they are enjoying up front. It has much the same rationale as business class, aiming for a market that has fallen between two stools: those who have wealth without being seriously rich. Their needs, or so the argument goes, have not been adequately met by the premium services offered by high street banks. And yet their wallets are not quite fat enough to gain them entrance to the hushed corridors of private banking.
Banks are well aware that there are more wealthy people around these days, fed by rising financial markets, a new wave of entrepreneurship and more inherited money, among other things. Since 1995, the number of millionaires in Britain has grown by 17 per cent a year, from 33,000 to about 74,000 last year, according to the research group Datamonitor. Much the same is happening in the next sub-layer of wealth. If the aforementioned are simply "the rich", these are high-net-worth individuals ("hinwis", in the trade), who have onshore liquid assets of between £200,000 and £1m. In the UK, their numbers increased from 372,000 in 1995 to 746,000 in 2000. Finally, there are the "mass affluent" - the hottest buzzword of all in banking right now. Worth between £30,000 and £200,000, they have grown from 2.2 million to 3.7 million. The combined wealth of the British mass affluent, Datamonitor tells us, is £313bn.
That's quite a lot to chase after, and banks, now that they have awoken to its potential, are chasing hard. But they are not drawn to this market merely because it is there. Wealth management's greatest attraction is that, notwithstanding add-on services, it is principally about asset management - investing customers' money in return for a fee. Those fees, particularly in troubled times, are a welcome and stable diversification from the vagaries of deal-making and lending, without being a burden on their need for capital.
So it is that banks of every description in Europe and the United States are launching wealth-management services, or reorganising and relabelling existing offerings as such. They may be boutique merchant banks, such as London's Close Brothers, whose wealth-management subsidiary will take on clients with £25,000 to invest. High street banks such as Abbey National are at it, too. Abbey has launched Inscape ("wealth management for the privileged many") - you must have £50,000 in liquid assets to qualify, though you need hand over only £20,000 to the bank. HSBC has joined forces with the US investment bank Merrill Lynch to offer integrated investment and banking accounts a little higher up the pecking order. Only those with upwards of $100,000 (about £68,000) in investable assets need apply.
Most of the offerings are thinly disguised asset-management products. You might get a fancy chequebook, access to tax and trust advice (for another fee) and an aggregated account that will pull together all your assets and liabilities with that institution on one screen. Some even offer a "named adviser". But the heart of it is that you are handing over a chunk of money, which they will manage for better or worse.
Now, this is not private banking as we used to know it. Consider Britain's best-known private bankers, Coutts & Co, now part of NatWest, which in turn belongs to Royal Bank of Scotland. They won't look at you without £500,000 in free assets - and, sorry, you can't include the value of your house. Some private banks have responded to the presence, dangerously close to their turf, of their more common brethren by working harder to emphasise the differences between them. Coutts, for example, has sent all its private bankers back to school, to make them "true experts in wealth management". It has also reorganised them into minutely specialised divisions, each catering to different needs. They include landowners (asset-rich, but income-poor), sports and entertainment (loadsamoney, but maybe not for long) and acquired wealth (what on earth shall I do with it?). Sports and entertainment has an even more specialised unit that handles only footballers.
Private banking smothers you in personal attention and one-to-one advice. But private bankers are expensive - not yet as expensive as investment bankers, but the gap is closing. The headhunting company Norman Broadbent says that a London-based private banker with ten years' experience typically commands an annual package of £165,000 a year. That's smallish potatoes for an investment bank, but for a high street operator it's a telephone number.
Rather than fork out for expensive humans, most new wealth-management services try to bridge the gap with technology. This allows an online aggregated view of the customer's assets and liabilities, incomings and outgoings. It should also be able to deliver, electronically, tailored advice to allow customers to make informed decisions about their wealth, perhaps with the help of an independent financial adviser. From the customer's point of view, it should also provide one-stop access while allowing them to buy products from different sources, not merely from the bank laying on the service.
In fact, the existing offerings do very little of this. Aggregation of accounts held across different institutions (instead of with one bank) has run into legal obstacles, as Citibank discovered recently when it launched a UK version of its MyCiti aggregated account. And the advice, such as it is, is primitive and generally limited to cross-selling a bank's own products. More is already technically possible. In the US, the mPower website works with regulated providers (because only the appropriately regulated are allowed to offer advice) such as American Express and Credit Suisse to give unbiased advice on pension products online. The Swiss-based company Temenos supplies some European banks with a sophisticated tool called Radar, which does risk-return assessment and portfolio comparison for investment customers. It won't specify what shares to buy because, again, only a regulated institution can do that.
So far, there is no software that will pull all these threads together to give integrated advice on someone's complete financial situation. That's one reason why wealth management has not yet been the success that banks would like. Another has been the kind of stock-market turbulence that makes some of the wealthy wonder if they still deserve the title.
Creating an all-embracing virtual private banking service remains a considerable technological challenge. Banks that persist for long enough to come up with one should be well rewarded. But if they can't, wealth management will join a growing pile of discarded passing fancies.
Edward Russell-Walling is a writer on business affairs
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