Patricia Tsien
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PDF Help Each year financial service firms spend huge amounts of
money to win a larger share of the affluent investor market, defined as
households with at least $500,000 of assets available for investment. Research
by Accenture suggests that much of this spending is misguided.
In the financial services industry, conventional wisdom
often holds that affluent investors dislike technology, are insensitive to
price, and demand a high level of personal service. This profile has been
translated into complex product offerings to give wealthy customers the maximum
number of investment choices and expensive hands-on service, primarily through
dedicated relationship managers.
The profile is inaccurate on all counts. Wealthy customers
aren't technophobes and, like everyone else, they won't pay for what they don't
value. Also, a surprisingly large number of them prefer arms-length service
channels. The flawed profile means that the industry's product and service
strategy might be questionable. Some firms have adopted a different strategy,
grounded in the research, and there's already evidence that it has a positive
impact on the bottom line.
The Methodology Despite its departure from conventional wisdom, the new
research is more reliable than prior studies. Earlier research used traditional
multivariate techniques, even though they don't accurately capture the
decision-making process of people who have complicated finances and broad,
often overlapping product choices. Accenture applied a rule-based, expert
system called Simalto+Plus which uses pattern recognition to identify the
optimal mix of product and service features for the target market. The research
consisted of personal interviews of 235 individuals with at least $500,000 in
investable assets. Each individual was asked to benchmark their current product
and service experience by checking off a list of up to 36 product and service
features with up to nine levels of intensity. They were then asked to go
through a series of steps to prioritize the product and service features from
the list; these steps determined customer perceptions of product and service
features, their importance rankings, unacceptable feature levels, and the
optimum combination of features.
The Findings The study found that affluent investors can be divided into
three segments defined by investing style:
- Fully dependent
- Opinion seeking
- Self-directed.
Fully dependent investors—21 percent of the survey
participants—aren't comfortable making investment decisions on their own. They
rely on trusted professional advisors and are willing to pay for the help. But
these investors don't have to have a personal relationship with their advisors
or be in the same room with them when they deliver advice.
Opinion-seeking customers—the largest segment identified in
the study, about 50 percent of respondents—are comfortable managing their own
money but solicit occasional advice from professionals. They are
price-conscious but willing to pay for benefits they value, such as depth of
execution support. The self-directed—about 30 percent of the
participants—manage their own money and make most of their own investment
decisions without consulting professionals. They want fast, convenient access
to their accounts and are price-conscious.
Implications for Action The research has compelling implications for financial
service companies in this crowded, intensely competitive market. First,
affluent customers aren't a homogeneous market. As a group they share some
preferences, but they also have pronounced differences. Moreover, their value
propositions don't match the one used by most of the industry that serves them.
These findings suggest a range of actions that financial
service firms should consider—some based on similarities across segments, and
some driven by important differences.
Understand clients' real needs. Most companies currently
approach the affluent market as a series of "wealth tiers ". This approach
masks the tradeoffs customers across tiers are willing to make—tradeoffs that
can increase customer satisfaction and provider profitability. For example, the
Accenture study shows that more than half of affluent customers surveyed will
give up some personal service for faster, more efficient service. All three
types of customers, including the fully dependent, prefer the telephone to
in-person meetings. At the same time, most customers, including self-directed
investors, aren't willing to switch to exclusive use of arms-length channels
such as the telephone or the Internet. Therefore, industry participants should
thus consider multi-channel access for wealthy customers and institute
enterprise-wide relationship management. These steps will break the monopoly of
the personal service model and allow companies to coordinate and market their
offerings better.
Offer customers what they value. The study is rich with
implications for product offerings. Customers find that some products are too
complex, and they'll accept simpler products if they have a wider choice of
products and assured access to advice. Opinion seekers want their providers to
offer comprehensive information and advisory services—such as trade execution
with investment advice. Moreover, they'll accept standard insurance products
and basic trust services if the provider has extended hours and guarantees
same-day resolution of problems.
Relentlessly focus on service. Service channels can't be
evaluated properly in isolation. As mentioned earlier, more than half of the
affluent customers surveyed said they were willing to forego some personal
service—the most expensive channel for providers—but only if they receive
faster, more efficient service in return. So increasing the number of wealthy
customers that relationship managers handle or allocating more of the
relationship manager's time to selling new products will backfire if the
company has sluggish or ineffectual customer service.
Make the right investment. Knowing their customers better
will allow companies to make better investments. For example, spending that
results in better execution support and a broader range of sales channels is
likely to help providers across all three customer segments. Other investments
should probably be considered only if providers are targeting a specific
segment. One example is 24 x 7 service; it figures only in the value
proposition of opinion seekers. Therefore, only firms pursuing this customer
segment should consider it.
The Bottom Line What are the potential bottom-line results? Accenture
tracked a group of high-net-worth customers who were offered a
product-and-service mix that took into account the Accenture research. Over a
three-year period, this group yielded a 10 percent reduction in transaction
costs and a 35 percent increase in revenue for the financial institution. Costs
fell because of a significant drop in face-to-face transactions and an increase
in the use of less-expensive channels such as phone and fax. Revenues jumped
because fewer client meetings gave relationship managers more time to sell new
products and services.
In short, what the Accenture research reveals is that
financial services organizations that make the effort to ascertain customers'
actual buyer values can generate significant benefits.
Patricia Tsien is a partner in the Accenture Financial
Services Strategy practice. She is based in New York.
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