A look at where the money is

The number of millionaires in the UK has grown at over 17 per cent a year since 1995 – to 73,990 in 2000 – and 7.9 per cent of the population can be classed as “mass affluent”, defined as having liquid assets of &£30,000 to &£200,000, according to Datamonitor’s recent research, “Global Wealth Service”.

The research reports that it is not only the super-rich that are getting richer. The mass affluent – those people that have substantial sums of money but have not yet broken the magic &£1m barrier – prospered in the latter part of the Nineties.

Substantially larger than the “millionaires’ club”, the number of people in the mass affluent category has grown at 13 per cent a year since 1995. The combined wealth of the mass affluent is &£313bn, almost three times as much as the still-substantial &£120bn held by the millionaires.

Over the past nine months there has been a surge of interest in the mass affluent market, as financial service providers have rushed to take advantage of a growing, profitable, but under-provided-for market segment. A number of financial services companies have rushed to announce the launch of their wealth management services. With increasing competition in the UK mass affluent market, business strategy and customer acquisition will prove critical challenges to providers entering the market.

Until late 2000 two types of product existed to serve the mass affluent market: “premier” banking services at the lower end of the scale and “private” banking services at the top. Now, however, there is a wide range of wealth management services.

The mass affluent services available vary widely in terms of the asset and/or income groups they target, and the product portfolio and customer service they offer. Many place a heavy emphasis on face-to-face customer service and the development of personal relationships, while some target the self-directed investor and consequently offer a predominantly online service.

The latest report in Datamonitor’s wealth series, “UK Mass Affluent 2001”, which uses MORI Financial Services data to analyse, quantify, forecast and segment the mass affluent market, has been able to identify its key demographic features.

The majority of mass affluent consumers are aged 35 or over, with the largest number falling into the 35to 54-year-old bracket. Retired and older individuals also make up a significant part of the mass affluent market: those aged 55 and over account for 38 per cent of the market.

The mass affluent market in the UK is dominated by men, who outnumber women by more than two to one. The mass affluent sector is concentrated in London and the South-east, with 38 per cent of the group living in these areas.

White Europeans constitute nearly 90 per cent of the UK mass affluent market, while Indians, black Caribbeans, black Africans and other non-white ethnic groups together make up only four per cent.

On average, 62 per cent of the mass affluent market has direct equity holdings, while 17 per cent of mass affluent consumers hold no investments at all. Young people dominate the group of mass affluent individuals not holding investments, partly because they prefer to spend their disposable income and partly because they are not sufficiently aware of the need for or benefits of investment.

Only 40 per cent of mass affluent consumers hold ISAs, although the flexibility and tax-free status of ISAs mean that they are well-suited to the needs of most investors.

A physical presence is important for mass affluent banking services, with 69 per cent of mass affluent individuals preferring to make their financial arrangements face to face. Over 20 per cent of mass affluent individuals are happy to make arrangements over the telephone, although a greater proportion prefers to use the post. A small but significant number of mass affluent consumers arrange their finances by computer. Despite the popularity of online services among the general population, remote services should be well-supported by a physical presence: multi-channel distribution is important in this market.

Companies seeking to derive additional revenue from the mass affluent market are hoping to cash in by designing a suite of products that are related to, but more sophisticated and personalised than those available to retail banking customers.

An optimistic forecast for the size of the mass affluent market foresees the number of mass affluent individuals rising from 3.7 million to 4.9 million between 2000 and 2004.

An important measure of the success of mass affluent services will be the “share of customer wallet” that a provider can take. Datamonitor believes that to achieve a significant “share of wallet”, competitors must deliver sustained high returns on invested assets, together with an adequate product range and multi-channel distribution.

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