01.27.21

Why Are We Focusing on the Mass Affluent?

by: The Kehrer Bielan Team

Many banks have prioritized capturing and retaining the banking business of the mass affluent. At the same time, their investment services units have encouraged advisors to focus on serving the more profitable mass affluent and affluent, moving mass market clients to investment call centers or digital advice platforms. As part of a two-year research project, the Bank Insurance and Securities Association (BISA) asked Kehrer Bielan to examine the importance of mass affluent households to member institutions and their investment services businesses.

We found that, while financial institutions each have somewhat different criteria for which households they identify as mass affluent, by their own respective definitions, mass affluent households loom large, accounting for 30% of an institution’s customers, 44% of their investment clients, and more than half of their investment services assets and revenue.

While overall customer penetration of investment services business in financial institutions has been disappointing, banks and credit unions achieve much higher penetration of these coveted mass affluent households than they reach with the mass market. While only 5.6% of a typical financial institution’s customers have an investment relationship with the institution, 21% of the mass affluent customers have invested where they bank.

Not only does investment services have broader penetration of the mass affluent than of the total customer base of the institution, but it also has deeper penetration. Investment assets per mass affluent client are $204,904 – only 9% higher than assets per client for the entire firm. But revenue on the assets of mass affluent clients is 63 basis points, 12.5% higher than the overall ROA for each firm. Consequently, investment services revenue per client is more than twice the revenue derived from the firm’s average client. Mass affluent assets are more productive.

In an environment where financial institutions continue to focus on expense management and are diverting resources to serve the mass affluent, it is no wonder that their investment services units are following suit.

For this study, 45 firms provided data on their mass affluent clients, including 13 bank-owned broker dealers, 14 credit unions, and 18 regional and community banks.

You can review these and other insights about the importance of a mass affluent strategy in Smart Investment 2: How Investment Services Drives Growth of Banking Services, Supporting A Mass Affluent Strategy, available only to BISA members.