Abstract: And for good reason, there's a $14 trillion pot of investable assets there, which adds up to a lot of fee income. But center stage is already crowded. Can banks elbow in? President Bush said it recently: great boom has begun to sputter a little bit. Indeed it has. In recent months.... * The stock market took a few whacks. * The economy softened and unemployment notched up. * Several brokerage houses reported a falloff in trading volume, followed by layoffs and/or salary freezes. Not a wildly bullish investment climate, obviously. So this hardly seems the moment to talk about growing opportunities for banks in the retail business, and especially in the related area of private banking/wealth management. Or is it? If there's one thing that's clear about the securities business, it's that the great bulk of the customers have longer time horizons than the much-publicized online day-trading hotshots looking for a quick killing. (There was a quick killing--of them. Many such hotshots are licking their wounds on the sidelines currently, thanks to those market whacks.) And when it comes to private banking/wealth management in particular, management and clients alike are accustomed to quite long time horizons. Within that very distinct culture, short-term phenomena, while not to be overlooked, are not taken for more than they really are. This goes some way to explain why, softer economy or no, banks continue to give more attention to the retail securities business in general and private banking/wealth management in particular. It helps that at some point this year, Congress and the Administration are likely to come up with some form of compromise on a major tax cut. Regardless of the final shape it takes, it promises to be substantial and to put more, maybe a lot more, discretionary income back into the pockets of taxpayers across the board. That, of course, has to be a shot in the arm for securities-related businesses. What the numbers tell us Over and above tax cuts, consider some background demographics favoring a heavier orientation to investment services by banks: People are living longer. The percentage of the U.S. population that is 65 or older has more than tripled since 1900, with the most growth in the group who are 85 and above. The American Society on Aging estimates that over the next 25 years the number of people over 65 will grow by 54% and the number over 80 by 45%. Meanwhile, the popular perception of saving for retirement has changed, as more people realize that Social Security plus traditional savings won't likely be enough by themselves to assure a comfortable retirement. Not with average life expectancy at 76 years of age, at any rate. Respondents to one poll of 1,637 adults gave an indication that perhaps 53% of U.S. households mainly live from paycheck to paycheck. And a Federal Reserve survey found the typical U.S. household to have no more than about $71,000 in net total assets, most of it in home equity, with net financial assets of just under $10,000, including money in retirement plans. Yet another study found that some 7% of U.S. households still keep $25,000 or more in passbook savings accounts. Clearly, this is not good enough for a great many citizens. Even so, it's important to note that the passbook percentage used to be far, far higher. A slow but steady shift in popular attitudes toward investing has been taking place, as awareness that there's a better way--investing for superior rewards over time--has grown. There's far greater receptivity to investing among the general population than was formerly the case. Today, close to 50% of U.S. households hold some form of direct or indirect investments (such as through company pension plans), and in the aggregate, substantial sums are flowing into individual investment vehicles, such as IRAs and 401(k) plans, aimed specifically at providing for retirement. …
Publication Year: 2001
Publication Date: 2001-04-01
Language: en
Type: article
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Cited By Count: 8
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