Wealth management for the mass affluent-Article1

Wealth management for the mass affluent

By Laura Bruce • Bankrate.com

Companies in the financial services industry differ when it comes to defining mass affluent. Generally, it means that you have a minimum of $100,000 to $250,000 in investable assets, although some consider $50,000 acceptable. The growth in this segment is ballooning even when $250,000 is needed for entrée.

Banks, in an effort to get as much of the pie as they can, are creating new levels of service. Where once it took $10 million to be welcomed into a bank's private banking enclave, there are now multiple tiers for the mass affluent, the high net worth ($250,000 to $2 million) and the ultrahigh net worth ($10 million+) categories.
As your net worth increases, should you hand it over to a bank to invest or are you better off with a traditional brokerage firm?

How the market developed

For decades, banks were known for checking, savings, mortgages and other loans, and trust services, which were geared toward the wealthy.

"If people with $100,000 or $150,000 walked into a bank trust department they'd be laughed at," says Joe Hoffmeyer, managing director of wealth management at First Bank in Clayton, Mo.

"So they walked down the street to Fidelity or Schwab or Merrill Lynch with their money and, with their financial consultant, grew their account. Now the client has $300,000 or $400,000 and maybe a 401(k) they want to roll over. So, now they have $1 million in assets and who has the money? Merrill, Fidelity and Schwab. So, the banks are saying, 'Hey, come to us.'"

What you get for the money

Celent, a consulting firm to the financial industry, defines mass affluent as people with between $250,000 and $2 million in net worth; meaning the house and all other assets minus debt.

Celent estimates that 90 percent of wealthy American households are in the mass affluent category. What can these folks expect if they walk into a bank and plunk down $250,000?
"At $250,000 they're not going to get much different than anyone else," says Robert Ellis, senior analyst at Celent. "The mass affluent has a lot of assets as a group, but they're not significantly profitable (to the bank) individually.

"Here's where it gets messy. A lot of firms like Wachovia are everything to everybody. So if you are a mass affluent or an ultrahigh net worth you get a confusing message. If they had a clear business model you'd have a pretty good understanding of what you'll get for $250,000," says Ellis. "The guy who has $10 million is asking the same question. You'll find $250,000 at Wachovia isn't going to get you a lot of service. You're going to get very standardized advice. I'm not picking on Wachovia -- I could put the names of 100 firms in here. Bank of America is a retail mass-market brand. It's a very nice bank, but if you have $10 million, are you drawn to a Bank of America or a Bessemer or a Brown Brothers Harriman?"

Wachovia's Private Banking service is available to customers with $250,000 to $5 million in investable assets. The bank expects 18 million American households to be in that financial situation by 2010; a 30 percent increase over 2005.

Jeff Hartman, Wachovia's private banking director for the Southeast, says he hopes someone with $250,000 would get the same level of service as someone with $3 million.

"But the honest answer is I think their needs are different. The person at the $250,000 level may not have as much of a tax situation to worry about. They might be very comfortable in some high-performing mutual funds whereas the person with $3 million may have much more of a need to control taxes, so they may see a little more robust investment platform, not because they're any better but because they need to manage their tax situation better.

"I think the biggest thing we can do in this private banking space of $250,000 to $5 million is help them grow. They're in the wealth accumulation stage and they're going to reach their wealth by us helping them grow. I think what this space has not gotten is a depth and breadth of advice and I think what they're going to see are more tailored credit products for them -- mortgage or credit lines to help them grow their wealth further."

Article from: NasDaq