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The fight for the middle market

Private banks are preparing to go head to head with IFAs for the mid-worth market.

“Mass affluent” consumers, with £25,000 to £250,000 inliquid assets, are now being seen as a target market for private banks. This sector, traditionally served by IFAs, is growing at a rapid rate. A new report commissioned by Close Wealth Management suggests there are now 11 million people in the UK in the mass affluent category. House price rises and increased investment mean that more people have more money.

Private banks believe these people would be interested in a form of investment different from the traditional unit trusts and life insurance and are significantly lowering their minimum investments in an effort to cater for this market – veering away from their tradit-ional preserve of high-net-worth individuals.

Abbey National is preparing to launch a wealth management initiative by the end of the year. Spokesman Daniel Schraibman says: “This is a high-growth market that is largely untapped. There is a perception that private banking is for the elite and there are vanilla services for everyone else but we believe there is a chunk of the population looking for a banking service.”

Abbey National is planning to offer face-to-face advice that will cover a range of options for people with a lump sum to invest.

But IFA Chase de Vere investment adviser Ian Millward says: “The banks are trying to offer an all-encompassing service, a bank account and portfolio service. This is nothing new. It is just a new market they are trying to target.”

NatWest Private Bank&#39s recently launched service is offering an investment management service that also looks after banking requirements. The service is initially being offered to 350,000 customers identified from its existing client database and relationship managers will provide a personal point of contact for the customer.

Are private banks providing a service that will actually increase consumer choice?

Close Wealth Management commissioned a report to see how mid-worth investors are served by the investment management community and in what areas the service could be developed.

The report, Stealth Financial Charges and the Mass Affluent, by Bristol Business School professor Merlin Stone, says consumers do not understand the relationship between risk and return and this results in them paying too much for “heavily packaged” investment products.

The report claims the mid-worth investors are paying billions of pounds in unneces-sary charges for overpriced products that do not reflect the risk profile or needs of the investors and are inappropriate.

Close Wealth Management managing director Martin Smith says the industry needs to have greater clarity on what charges are and the impact they have on investors. He says: “The cost of brokerage – buying and selling across shares – is not disclosed.Customers need to be totally aware of what is going on.”

The report claims customers are “mystified” by the packaged financial services industry. It says packagingand guarantees of returnsconfuse customers into thinking these are the only options for low-risk investments.

The combination of insurance and investment means what the customer gets is effectively expensively provided insurance and the report suggests smoothing investment returns means the investment is held for much longer periods and that unsmoothed investment, combined with careful disposal, could yielda much higher return.

But life offices say they are making efforts for clarity in their products. CIS communication manager Russ Brady says products are more transparent about charges than they were and more portable.

He says: “People forget where we have come from. There is certainly no complacency in the industry and lots of work still needs to be done but in the long-term savings products are becoming more transparent.”

The report suggests that direct investing with wealth management companies can be an alternative to packaged products. Consumers can select from a broad range of target risk/return profiles. Smith says CWM will help them to decide where to invest the money by developinga risk profile.

Smith, who was formerly managing director of Abbey National IFAs, says it highlights best and worst-case scenarios, discusses likely returns and illustrates the maximum loses an investor could sustain. But IFAs also go through a detailed fact-find process to ascertain the risk profile of their clients. IFA Baronworth investment services director Colin Jackson says: “I truly believe that most IFAs go into this in some detail with their clients otherwise they cannot fully understand the risk.”


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