84% of banks are missing a 'mass'-ive wealth market opportunity

Banks and wealth management firms owned by banks are desperate to grow by courting wealthy Americans. 

But a new report suggests that most of them appear to be missing out on a prime opportunity for future growth that's closer at hand.  

Industry research and consulting firm Cerulli Associates finds that only 16% of firms in the banking sphere, including banks and firms attached to banks, offer tailored wealth-related or investment services to the so-called "mass market," or American households with investable assets under $100,000. 

"Despite comprising nearly two-thirds of all U.S. households, the mass market represents banks' least frequently targeted demographic," Ceruli said in a press release on the report. Data in the report was primarily based on research by Cerulli, as well as figures from the Federal Reserve and U.S. Census Bureau. 

The most common target for banks in the study was a more well-heeled group known as the affluent segment, where households typically have from $2 million to $5 million in financial assets and average $3 million per household. 

The more wealthy the potential clients, the more banks in the study generally strove to offer them "high-touch" services where teams of financial advisors and specialists would cater to their complex financial needs. However, the merely upper middle class — 'middle market' households with assets of $100,000 to half a million and the 'mass affluent' segment with assets of $500,000 to $2 million — would instead receive hybrid service, or a mix of self-directed and advisor-mediated in many cases, the authors of the Cerulli report wrote. 

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As for those who are worst off, banks leave them to their own devices for the most part. Such clients might get to use a brokerage platform with zero-commission trades, and some "educational content," the report authors wrote, adding that typically such offerings are deemed "adequate" for those with less than a few hundred thousand dollars of assets. 

"The service delivery model of providers in this space is becoming highly digitized and automated with minimal access to human advice providers, and often centers around an online dashboard," according to the report.

Yet many younger Americans in this snubbed group, who have yet to hit their prime earning years or inherit a windfall, are already beginning to look for financial advice. A study by Ameriprise earlier this year found that millennials are seeking financial advisors earlier than older generations of Americans did. 

READ MORE: Edward Jones study: Young clients want to retire early but aren't ready

Once someone's locked into an advice relationship, research suggests that most clients will at least outwardly express feelings of loyalty to the advisor they already have, meaning it will be harder to pitch the bank's own financial advisors at that point. 

"There is an opportunity for banks to create lasting relationships with mass market clients in the accumulation phase," Matt Zampariolo, analyst at Cerulli, said in the press release. "Banks that create a differentiated, engaging client experience will be well positioned to retain clients as they cross into higher wealth tiers." 

Chayce Horton, a senior analyst in wealth management at Cerulli, said in an interview on the report that it's understandable that banks want to focus on chasing rich clients. 

"A lot of the wealth that's been created in the country has gone to those upper-tier households," Horton said. "But in the same vein, there still is tens and tens and tens of millions of people who need services. And if they're properly guided throughout their financial lives, they're more likely to have assets later on in life." 

Better services for mass market clients can also help a bank keep its young advisors, since they're more easily able to grow their books of business and learn the trade if they're given smaller accounts to work with at first, he said. 

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Since building out services that cater to each client segment is costly and requires heavy investment in technology to build attractive platforms, banks can outsource some of that, and increasingly do so, Horton said. Independent broker-dealers such as LPL Financial and Ameriprise, have benefited from banks and credit unions making that decision to stay competitive in recent years.

At the same time, some institutions are partnering with specialty firms offering services like estate planning at scale. Navy Federal Credit Union's wealth management unit, Navy Federal Investment Services, in October, announced a partnership with budget estate planning startup Trust & Will to provide affordable estate planning services to members, for example.  

READ MORE: LPL doubles its hiring of bank and credit union financial advisors

Horton said services a bank could implement to better serve the mass market include an all-in-one portal with self-service and access to features like trading — to graduate clients from services like checking and savings accounts, for starters. Second, firms should allow clients to "speak to an actual person" and ask questions — which can happen through a call center or a dedicated professional, "obviously for a slightly higher charge." 

The third level should be "having access to financial planners and people who can really set up a plan and a series of steps to follow over the course of years and decades," Horton said. "That can really help retain those clients over time. Because you extend the impact of the service throughout decades, rather than the next couple of years or months." 

Sarah Adams, the chief sustainability officer and co-founder of Vert Asset Management — an RIA based in Sausalito, California — agreed. While banks are often structured to see clients transactionally, and often cross-sell their own products, "financial advisors have always meant to be more personable and personal with the client," she said. "The financial planning piece is what needs to stay there."