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Targeting the Wealth Market

A couple of months ago, two economists from UC Berkeley offered a compelling study on the shifting distribution of wealth in the U.S. Their research suggested that the rich are getting richer, and the very rich are getting richer still. Consider the following findings:

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Many social scientists have argued that this rising wealth stratification is of some concern to firms in wealth management.

While overall wealth may be rising, the market for wealth services is shrinking. At the low end of the affluent spectrum, the wealth base of the mass affluent is deteriorating with a rising number of households falling back into the mass market. At the high end, extreme wealth among a relatively small number of households has confined the providers to market to those organizations that have the product/service set suitable for the ultra-rich. And, for these providers, larger accounts have continued to compress fee levels and increase the demands for better and broader services. In the middle, the affluent market is somewhat static with wealth managers competing largely for take away business.

In addition, more firms are entering the mass affluent and wealth management business. Particularly for banks, serving mass market households with transaction services has become unprofitable. This has led many institutions to turn to broader fee-driven service packages targeted at higher-net-worth households to sustain profits.

In the end, even those that serve the wealth markets may benefit from taking a look at the long-term trends in wealth distribution and the shifting mechanisms that control the creation and distribution of wealth. These trends are serving as drivers for the development and implementation of even more targeted offers to these markets.