In recent years, we’ve seen competition intensify across virtually all areas of the UK and Ireland banking industry. But—in my view—wealth management is one of the areas in which these competitive pressures are really reshaping the industry.

This trend partly reflects the rising number of players in the market. Incumbent financial institutions are seeking out new client bases and targeting wealthy individuals while purely digital wealth platforms are also entering the market. And non-financial players—including the global tech giants—are expected to gain ground in the coming years.

A new target demographic

However, the rising competition also reflects changes in the market itself. Traditionally, wealth management services focused mainly on high- and ultra-high-net-worth ((U)HNW) clients. But the growing middle class in the UK and Ireland has created an expanding ‘mass affluent’ demographic eager for financial advice. We think that these customers have between £100k and £1m in investable assets, want personalised offerings and are used to convenience through digital channels. About six million UK households fall into this category according to the ONS.

The key challenge facing all players is combining scale with a cost-effective, personalised and innovative offering that matches these customers’ exacting needs.

Past attempts to target the mass-affluent market have largely failed because of high servicing costs. But it now could present a vibrant new growth area for UK and Irish banks—if they can solve the cost-inefficiency problem by offering services on a large enough scale. Retail banks are particularly well-positioned because they can cross-sell these new services to some of their existing customers. But the key challenge facing all players is combining scale with a cost-effective, personalised and innovative offering that matches these customers’ exacting needs.

Achieving relevance

Against this background, I think there are three guiding principles that will enable banks to serve mass-affluent customers at scale and remain relevant to their needs.

  1. Adopt a client-centric approach to develop cost-effective and personalised offerings
    Understanding customers’ preferences is key. Traditional wealth management for (U)HNW customers was founded on long-standing personal relationships and advice provided face to face for relatively high fees. Some newer wealth managers have been launched with pure-play robo-adviser offerings—but they’ve tended to struggle, partly because some clients prefer human interaction when making major investment decisions. So, to service the mass-affluent market cost-effectively, banks need to find the right combination between automation and personal interaction while ensuring that both are informed by insights into customers’ changing needs and expectations.
  2. Invest strategically in competitive tech solutions
    Many fintechs have used digital channels and emerging technologies to develop cost-effective financial advice offerings. To fight back, banks need to invest in digital channels, self-learning AI, process automation and Big Data analytics. Today’s clients expect tailored digital solutions that are relevant to their needs, and only by embracing digital and analytical tools can banks deliver these. There are many technological offerings on the market in this area—but beyond implementing products, banks will need to carefully curate the right technology capabilities to unlock value and strike the optimal balance between digital and personal customer interactions.
  3. Create an agile operating model
    Banks looking to target current or new mass-affluent clients cost-effectively will need to repurpose their support functions and wider operating model to be more agile—both in terms of servicing clients and also responding to shifting competitive threats. This means setting up the business in a modular way to identify, analyse and act immediately on changes in the market and client expectations, enabling the bank to remain relevant when everyone else is being disrupted.

Mapping out a new mass-affluent offering

One good example of mass-affluent wealth management services at scale is the joint venture between Lloyds Banking Group (LBG) and Schroders. Called Schroders Personal Wealth (SPW), the collaboration capitalises on three factors: LBG’s existing 30 million-strong client base, Schroders’ innovative yet proven technology and the backing of two strong and trusted brands.

Overall, it’s clear that the wealth management industry is being disrupted by a combination of ongoing technology innovation and profound shifts in the client base. Retail banks are well-positioned to capitalise on these changes by offering wealth services to their existing clients in cost-effective ways. But there’s also a major growth opportunity for all players—provided they can understand the needs of mass-affluent customers and use cutting-edge technologies to respond to market change.

The starting gun has been fired, and the race to realise the potential of this emerging segment is under way. It’s not yet clear who the winners will be, but my money is on the players with the best blend of personal and digital interactions to meet customer needs.

My thanks to Hilda Fassihi and Berivan Dilan for sharing their expertise on this topic.

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