donderdag 13 oktober 2011

Mass affluent Banking in a six pillar concept. by Frederic de Melker

Over the past 30 years, the mass affluent segment took off significantly.  In its ongoing growth, more and more households get access to better life conditions which allow them to build wealth.  This new situation forces individuals to drive their own future and to manage their assets accordingly.  In general, banks already recognized this evolution during the early days and understood that this segment had to be treated differently.  The need of these customers could not be fulfilled by one-off product sales, but in a coherent framework of financial solutions.  Thus, the function of ‘relationship manager’ was born…
Now, three decades later, financial institutions still seem to struggle.  Market studies show us that there is still a big gap between what customers are expecting and what banks are offering.   A lack of execution of a conceptual approach contributes to the service gap that banks currently face.
A conceptual approach can be translated in six pillars of needs:
First of all, there is cash to be managed.  Managing your cash goes beyond having a fixed deposit or current and saving account.  An individual has to protect himself from unexpected events that prevent him from paying monthly fixed expenses.  This is why he should hold a healthy cash position that covers at least 6 months to 1 year of expenses.  A solid cash management helps to build optimize and maintain this reserve.    
Wealth means that your cash pool exceeds the 1 year needs.  This money is managed in the longer term taking into account future plans and cash flows, be it positive or negative.  A portfolio exists of a combination of investment vehicles, based on the philosophy of open architecture in line with a personalized customer profile.  A lot of banks put extra emphasis on this pillar, because it is associated with the need of managing the wealth that customer in the mass affluent segment build.
Nevertheless, to finance larger projects like a car or a house, this segment has a particular need for loans.  Discounting future revenues to realize dreams is a common behavior.  The third pillar provides the customer with a flexible framework of loan offerings.  Flexibility means that pre-approval of eligible loan amounts can facilitate the customer to make the right decisions and to oversee his maximum capacity.
Once dreams are made tangible, it is important for the individual to protect what he achieved.  There are two major elements to it.  Firstly, there is the importance of protecting your life, which means protecting your income when you retire and protecting the income of your family when you decease. Solutions should be transparent and in line with the customer’s interest. A second priority is safe guarding your belongings.  The customer should have access to insurance programs that protect their assets and third party liability.

The fifth pillar contains the facilities a mass affluent customer receives to support banking transactions.  For instance, transparent segment related pricing mechanisms provide the customer with benefits on their banking transactions or an international banking network gives them international flexibility when needed.
Till now we only spoke about fulfilling customer satisfaction.  To have a sustainable long term relationship with the customer, the financial institution should build trust.  The relationship pillar is the last aspect of the model.  The bank’s focus should be on gathering, analyzing and synthesizing information to ultimately share it with the customer supporting his decision-making.  The fiduciary responsibility of the financial institution is to provide information which is un-biased and not influenced by any commercial interests.  Only correct and adequate information streams build trust.
From this perspective, a relationship manager should not be seen as part of the value proposition.  He is a guide for successful decision-making and he is inspired by the customer’s success.

Frederic de Melker    

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