Do Millionaire Investors Get Better Deals?

In 2007, the term "moving upstream" was all the rage in private banking and brokerage.

Merrill Lynch, Morgan Stanley, Smith Barney and others were focusing on true millionaires to reap bigger rewards. The merely affluent were shuttled off to ATMs and 1-800 numbers.

The reasoning: the biggest profit came from those with the biggest wealth.

Now, the banks seem to be reversing themselves. And it isn't just because of the falling millionaire population.

A Reuters article quotes Enrique Marazuela, chief investment officer at the fund management arm of Spain's BBVA, saying that serving clients of lesser wealth is actually more profitable than serving the ultrawealthy.

Customers with 100,000 euros to 300,000 to invest ($147,180 to $441,540) were "much more profitable" and generated business with gross margins of more than 1% of assets under management, he said. For customers with more than two million euros to invest, the gross profit margin was "below 1%," he said.

Why? For starters, competition for the multimillionaire client is fiercer than for the merely affluent. Those with $100 million or more of investible assets are constantly given freebies, deals, discounts and incentives to open accounts that give a wealth manager more prestige and a huge pile of assets under management.

But perhaps the biggest reason is that larger clients often are more sophisticated. They behave more like institutions, able to scan the market for the best spreads, prices and opportunities.

The thinner margins are further proof of one of the wealth-management industry's open secrets: the rich tend to get better deals than the merely affluent.


http://blogs.wsj.com/wealth/2009/10/07/do-millionaire-investors-get-better-deals/

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