The growing dominance of the mass affluent wealth segment, defined as having between $100,000 and $1 million of investable assets, is starting to attract the attention of wealth managers who are challenged with asset growth.
According to consultancy Capgemini, this segment represented 11% of the global population in 2020 and 40% of wealth assets. Despite being a large growth opportunity, the segment is underserved, with only one-third of wealth firms exploring mass affluent services.
A key obstacle preventing wealth firms from participating in this growth segment is creating an agile business model capable of profitable client engagement.
While the mass affluent segment represents a diverse set of investors with varying needs and expectations, they have several important characteristics that require a tailored wealth management solution. Demographically, they tend to be dominated by millennials and boomers. These investors tend to be tech-savvy, with the younger members embracing self-service technology. Individuals in these cohorts are also likely to participate in the largest intergenerational wealth transfer in history, significantly increasing the asset growth opportunity for advisors and firms.
At the same time, 90% of advice seekers want human support as part of their financial guidance, according to a 2022 U.S. consumer research study by financial planning software provider eMoney Advisor. Consumer needs and expectations include financial and retirement planning, education funding, and wealth accumulation. Rather than the “do it yourself” attitude of some young investors who prefer digital advice or the “do it for me” attitude of experienced investors who prefer a human relationship, most mass affluent investors seek a “do it with me” approach for both goals-based and long-term planning needs.
A significant challenge to pursuing the mass affluent market segment, then, is freeing up an advisor’s time so they can spend more of it with more clients. Last year a JD Power report highlighted that 28% of U.S. advisors said they do not have enough time to spend with existing clients. Further, these advisors spent an average of 41% more time each month than their peers on non-value-added tasks, such as compliance and administrative duties.
Another concerning statistic comes from a survey from Nitrogen, a provider of client engagement software, of over 1,000 advisors, who ranked increased regulations as their primary obstacle to growth.
It should come as no surprise that firms challenged to provide clients with face time focus on the upper echelons of the market simply due to advisor capacity.
Most industries leverage technology to scale capacity and grow, and the wealth management industry is no different. The mass affluent segment offers a highly appealing growth opportunity that comes with the challenge of scaling human advice.
To win that segment will require the automation of routine advisory functions such as compliance, onboarding and reporting, freeing up the advisor to spend more time with clients. Next will be recognizing that these investors expect capabilities that only technology can deliver. Combining automation plus client-focused tech to deliver a hybrid advice model will position wealth leaders to capture this highly lucrative and large client segment.
David Reeve is CEO of InvestorCOM Inc., a compliance technology provider to the wealth management industry.