The Economist - USA (2019-12-21)

TheEconomistDecember 21st 2019 97

1

L

inda, a 54-year-oldevent consultant

in Los Angeles, is neither disorganised

nor innumerate. Ask about her finances,

however, and you lose her for two hours.

She opens her current (checking) account

on a mobile app, then cites a rainy-day fund

at another bank. She has 14 credit cards,

five mortgages, six insurance policies and

several pensions with ex-employers.

Ranks of pinstriped advisers have long

helped the very rich to invest, minimise tax

and pass money down the generations.

Everyone else has had to work it out on

their own. “People’s relationship with

money is broken,” says Martin Gronemann

of redAssociates, which uses anthropolo-

gy to advise businesses. It reckons that per-

sonal finances are a bigger source of stress

than worries about crime or health.

Now, however, financial firms are com-

peting to democratise wealth manage-

ment. On December 8th Goldman Sachs,

which used to shun clients with less than

$25m, said its robo-adviser could soon

serve clients with as little as $5,000 to in-

vest. And on December 14th Vanguard, an

asset manager with nearly $6trn under

management, teamed up with Alipay, a

Chinese tech giant, to counsel customers

with at least 800 yuan ($114).

The wealth-management sector is frag-

mented and ripe for disruption. ubs, the

global leader, has a 3% market share and is

the only firm in the top four in each of Eu-

rope, Asia and America. The industry re-

mains technophobic, says Charlotte Ran-

som, a Goldman Sachs veteran now at

Netwealth, a challenger. Advisers spend

half their time on tasks that could be auto-

mated. According to ey, a consultancy, only

56% of clients fully understand the fees

they pay.

The industry stratifies customers in a

manner rather similar to airlines. “Afflu-

ent” clients, with between $300,000 and

$1m in assets, get premium-economy treat-

ment. They may talk to advisers by phone,

but banks will do all they can to keep them

out of branches. Investment options are

limited to ready-made funds. “High-net-

worth” clients, with up to $15m, fly busi-

ness class, picking stocks and chatting in

person with named advisers. Flying private

are the “ultra-high-net-worth” individuals,

who have access to venture capital and cur-

rency hedges, with exclusive dinners, golf

outings and so on as cherries on top.

Whereas high-net-worth individuals

typically pay no more than 1% of assets in

fees each year, the mass affluent often pay

over 2%—the average yield of s&p 500

stocks—for inferior service. Cattle class

gets no service at all. Saving for retirement

is the second-biggest financial commit-

ment most adults ever make (after buying a

home), says James McManus of Nutmeg, a

British fintech. Yet most do it with no help.

That leaves a lot of money on the table.

According to Oliver Wyman, a banking

consultancy, the affluent, with $21trn in as-

sets, and those below them, with $51trn,

have as much to invest between them as

high-net-worth individuals. The problem

is that advisers, branches and time are

costly. Most private banks deem portfolios

below $2m barely profitable.

Yet three factors are conspiring to bring

that figure down. The first is technology. In

2001 Credit Suisse tried to go budget with a

pan-European online network. But the cost

quintupled to €500m ($447m), in part be-

cause it relied on huge servers. Today data

are in the cloud, and firms can bolt on apps

instead of coding everything.

Second, the top of the pyramid is getting

crowded. Banks love wealth management,

with its high returns and low need for capi-

tal. As they have all tried to expand their

Wealth management

For the money, not the few

Hold your nose. The world’s snootiest money managers are being forced to serve

the unwashed masses

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