Attracting the mass-affluent

WEALTH management is the ubiquitous buzzword that players from across the financial services spectrum now employ to cover the mass-affluent in UK society - those with £20,000-£250,000 in liquid assets, and especially the attractive 41-60-year-old market.

In investor presentations by banks and insurers, or when brokers tell institutions they can deliver a re-rating of their stock, the term has rapidly become the mantra when handling individual and retail investments alike.

However, there is more than one opinion regarding what the term means - one popular view refers to the private banking model traditionally available to the super-wealthy, now customised for high-net-worth and mass-affluent customer segments. Another refers to the set of products that investors use to build and manage their wealth, like managed investments, life insurance, broking and mortgages.

Financial experts at Accenture prefer to define wealth management as advice-centric financial services - what they describe as the emerging "value proposition" around which customers will consolidate financial relationships, and banks, brokers and insurers will converge to own the customer.

Here, the catalyst for that convergence is the fundamental shift in buyer values arising from an increase in life expectancy and pension reform. A retailisation of pension regimes places the responsibility of providing for increasingly lengthy productive elder years with retail investors.

The bottom line is that nowadays investors are empowered to choose how to manage their retirement savings. This is creating a corresponding demand for advice to guide choice, as emerging technologies and unprecedented financial regulatory changes continue to alter the field of play for institutions.

This is happening against a backdrop of City watchdog Financial Services Authority plans for shake-ups to further liberalise regulations where investors - of whatever size, individual, private client or retail - can be offered a wider and more flexible range of funds and unit trusts.

The FSA wants a broader range to make it easier for unit trust groups to launch funds that protect and guarantee investor returns. A consultation will propose - for the first time - that companies will be able to cap the size of a fund.

Under existing rules, funds have to remain open to new investors, but limiting size will make it easier for companies to use derivative instruments, like futures and options, to protect returns. It is currently difficult for open-ended funds to offer guarantees.

Such change would give the industry a welcome shot in the arm at a time when unit trust sales have fallen sharply as investors shun markets, fearing further stock market falls. Ros Clark, technical adviser at the Investment Managers Association (IMA), claims it will make trusts more flexible for manager and investor.

Meanwhile, sales of tax-efficient individual savings accounts fell by more than 50 per cent in the first three months of 2002. Another key factor is a new Pensions Fund Disclosure code, requiring an unprecedented level of disclosure, where UK fund managers will have to dramatically increase levels of openness over the fees they charge pension fund clients.

The IMA’s chief executive, Richard Saunders, says the code follows calls for greater transparency and will "inevitably lead to changes in market practices".

Ruwan Weerasekera, Accenture Wealth Management UK partner, points to an Accenture/MORI survey of the mass-affluent, identifying why financial companies’ recent strategies have failed to meet investor expectations.

He told FT Business Professional Wealth Management: "The well-off are under siege. A host of financial institutions have launched initiatives targeting the wallets of the mass-affluent - people with 20,000 to 250,000 in liquid assets."

These businesses were launched with large marketing budgets and high hopes. "Unfortunately, the onslaught has yielded few customers to date and many of the attackers are now reconsidering their strategy," Weerasekera said.

Clearly, the recent poor performance of equities has played a role in the "underwhelming" market reaction to these businesses, especially for ventures that are primarily equity or equity-fund dependent.

To gain a more in-depth picture, Accenture together with MORI conducted a survey of the UK adult population with more than 20,000 in liquid assets*. It reveals some of the underlying causes of the ventures’ disappointing results, and points to how they can still grab the attention of the mass-affluent market.

In the current regulatory environment, one of the most contentious issues is the possible move from commissions to fixed fees for personal financial advice. The Accenture/MORI survey shows it is actually unlikely to be as important to affluent customers, as first expected.

Also, overall, 62 per cent of respondents said they would be willing to pay for advice, and if self-directed people are taken out of the equation the figure rises to 70 per cent, and 78 per cent if only internet users are considered. This influential survey found that fixed fees seem to be the most likely future standard for market along with regulatory reasons.

*360 face-to-face interviews of British adults with in excess of 20,000 in liquid assets, carried out by MORI between 13 September and 2 October 2001.

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