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Mass-Affluent Largely Self-Directed, Web-Oriented


As firms increasingly start to focus on mass-affluent investors, they need to understand their behavior to effectively capture their assets, and this group is highly independent, unlikely to rely on a financial adviser and dependent on the Web, according to a survey by Aite Group of Boston.

The survey, "What Really Matters to Retail Consumers of Online Brokerage? Who They Are and What They Value," polled 333 investors with online access.

Of these, 120 were identified as mass-affluent investors with assets between $100,000 and $1 million. The majority, 67%, were between the ages of 35 and 54.

The industry is very focused on targeting the Baby Boomers, but firms need to attack the whole market, not just one segment, said Adam Honore, senior analyst and author of the report. "There has to be a balance," he said.

Mass-affluent retail investors have the potential to become high-net-worth investors in the future, he noted.

Several brokerages, such as Wachovia Securities, Ameriprise Financial, Charles Schwab and E*Trade Financial are focusing on the mass-affluent group, viewing them as "the new sweet spot," Honore said.

"While brokerage firms move the customer sweet spot from high-net-worth investors to a more target-rich market of mass-affluent investors, many would do well to note this is not a single bucket of individuals," Honore said.

By and large, firms do not understand the behavior of this group, he added. And although firms say they are reengineering their sales and marketing teams to target mass-affluent investors, they cannot successfully hire salespeople, train them and expect them to win over these clients, he quipped.

The channel model needs to be more multi-faceted for long-term success, he said.

Most advisers do not know how to target the mass-affluent, either, and it is not a well-marketed area, said Dennis Gallant, president of Gallant Distribution Consulting of Sherborn, Mass. Advisers tend to focus on clients with assets of $1 million or more.

Mass-affluent investors also don't seek advice in the accumulation phase that often, he added.

Some mass-affluent investors might not perceive themselves to be wealthy enough to use an adviser, thinking the costs are too high and the benefits few, Gallant said.

Only 5% of mass-affluent investors receive their primary investment advice from a financial adviser, compared to almost half of mass retail investors. The report also found that 37% of mass-affluent investors have relationships with four or more financial institutions.

The behavior of this group is different than the high-net-worth clients, who expect a certain level of service, the report notes. A mass-affluent investor is very self-sufficient, Honore said.

Mass-affluent investors like to use online tools to check account balances, perform research and do some trading on their own, Honore said. Nineteen percent of mass-affluent investors are likely to check their account balance five times a month or more, the report said.

A lot of mass-affluent investors research fund company and brokerage websites. Thus, it's good to have stock and fund selection tools on these websites, such as a tie-in to the Morningstar website, Honore said. Mass-affluent investors will also act on the research they find online, and 34% indicated trading is their primary online activity.

"Those in the demographic who leverage online capabilities are demanding customers," Honore said. "They are younger than their high-net-worth peers and much more self-help oriented in their investing style. For that reason, firms that ignore their online capabilities in favor of pretty statements and upscale branches in the best markets may find themselves playing catch-up to firms that continue to innovate their online offerings."

Over 20% of mass-affluent and 26% of high-net-worth investors view online capabilities as a significant factor in broker selection. Thirty-two percent of the mass-affluent surveyed said online capabilities are an important retention factor.

Mass-affluent investors also like to receive customer support electronically. E-mail has become a popular channel to receive support, with 36% of mass-affluent investors indicating this is their first choice for support.

Mass retail investors' preferences are similar, but high-net-worth investors ranked e-mail as their third choice for primary support. Instead, for them, call centers and branch support ranked first and second.

Very few firms are using the e-mail channel to its potential, said Susan Menke, senior financial analyst at Chicago-based marketing and research firm Mintel Research. Some firms don't use e-mail due to regulatory concerns, but it is an effective way to provide customer service to clients, and it is a cost-effective alternative to a call center, she said.

Interactive chat offers are unpopular across the board, but 5% of mass-affluent investors use the feature, the most out of any other group. However, the area will grow well beyond its current 2% market share in coming years, according to Aite Group.

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