A big bank follows the wirehouses upmarket
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27 March 2016William Trout
JP Morgan Chase’s decision to double the minimum asset level (from $5 to $10 million) required for service by its private banking group underscores the effect that digitization is having on all levels of wealth management. It echoes the approach taken by the wirehouses, who (with the exception of Merrill Lynch, which has served less affluent clients through its Merrill Edge program) have moved steadily upmarket in an attempt to rationalize their high cost service models. As such, the decision does not come out of nowhere but rather reflects the evolving economics of the advice business and the desire to incorporate new service models. It also speaks to the challenges and opportunities facing commercial banks. The Next Shoe to Drop Little noticed in the run up to the announcement of the rejiggered segmentation were a series of layoffs across the private bank. In retrospect, it is clear these were executed to lay the groundwork for the reprised segmentation and the pending launch of what the bank calls Private Client Direct. From the name itself, it is pretty clear that the bank is set to embrace a robo advisory model, perhaps in concert with one of the vendors (such as Trizic, the founder of which, Brad Matthews, is a JP Morgan alum) that have cropped up to serve the bank space. If it moves fast enough, JP Morgan could be the first bank south of the Canadian border (BMO launched its SmartFolio robo advisor platform earlier this year) to roll out such a platform. In truth, the JP Morgan decision is as much a right sizing as a rationalization, since only a small share of current private bank clients are affected by the move. From the bank’s perspective, this tighter segmentation is worth the effort, as small deposits exact a relatively high cost in terms of compliance and offer scant opportunities for profitable lending in the current rate environment. The point has been made, meanwhile, that personal service of the high touch sort is now reserved for the bank’s wealthiest clients. Doubtless management will pull out all the stops to keep these clients happy.
Asia-Pacific, EMEA, LATAM, North America