Focusing on the mass affluent investor segment is more of a priority for banks in countries with a decelerating property market such as Australia, Canada, and New Zealand.
With New Zealand’s property market reportedly struggling in the latter half of 2016 and forecast to have a more moderate 2017, banks need to rethink their strategies. While we expect residential mortgage balances outstanding to continue to rise, mortgages cannot be expected to power new business to the same extent as before.
With consumers weighed down by large debt loads, the appetite for further lending will be constrained and banks need to target customers who are able to hold up under the pressure and who are most interested in other services.
In New Zealand, like many other mature markets, this means mass affluent investors with between $50,000 and $1m in onshore liquid investments.
These investors are naturally more open to the cross-selling of wealth management products and services. This may include structured retirement savings management like KiwiSaver, execution-only services like brokerage or term deposits and portfolio investment entities, right up to more complex investment advice.
However, banks have another reason to be interested in these customers. Not only do they have larger investment portfolios than the rest of the retail market, they are more diversified as well.
Research by GlobalData shows that the typical mass affluent investor has a total investment portfolio much less dominated by property than is typical in New Zealand. They are definitely invested in the market – the significant price growth in Auckland would have been hard to resist – but their other investments mean property accounts for a more modest share.
This diversification means the mass affluent will be less adversely affected by a moderate property market and so less preoccupied with its debt load. And consumers less focused on their debts are more open to the cross-selling of any financial services, not just classic investment products. This suggests it is time to reconsider the mass affluent as a source for business growth, in New Zealand and elsewhere.