RISMEDIA, July 25, 2011— (MCT)—As the economic recovery sputters forward, banks continue to bleed revenue in such mainstays as commercial lending and, of course, mortgages. So they are increasingly catering to the only customers who have survived the Great Recession relatively unscathed: rich folks.
Customers with more than $1 million in liquid assets (not including the house, or two) can expect some extra coddling these days, as banks are adding services and staff to their wealth management divisions.
The new focus for many banks stems largely from a simple lack of other options—as historic government bailouts wind down and sobered consumers and businesses grow increasingly allergic to new debt. Nearly a fourth of Americans are underwater on their homes, and so won’t be needing a mortgage; and starting or expanding a business into the current headwinds takes a brave and well-capitalized soul. Simultaneously, banks have seen their bedrocks of revenue from debit card and overdraft fees eroded by new federal regulations.
By contrast, the 3.4 million people in North America holding more than $1 million in liquid assets actually grew their wealth by 9.1 percent last year, to $11.6 trillion, according to Merrill Lynch’s World Wealth Report released last month. The number of high-net-worth individuals in North America has also risen, growing 8.6 percent last year.
Bank of America’s Global Wealth and Investment Management division, which serves high net worth individuals through its Merrill Lynch and U.S. Trust business units, saw its first-quarter revenue jump 11 percent, to $4.5 billion.
When it released its wealth report, Merrill Lynch said high-net-worth individuals were expected to continue to shed their real estate investments in 2012 and increase their equity and commodities allocations.
So banks would be foolish not to follow the money, says Joe Hoffmeyer, principal of St. Louis-based Phoenix Financial Services Consulting and a former manager of First Banks’ wealth management division. “Every board of directors of every bank in the world wants to focus on wealth management now,” he said.
That focus translates to extra staff, including some superstar financial managers recruited by local banks and divisions, along with concierge-type service and expanded “family” financial education programs on strategic planning topics.
Commerce Bank, based in Kansas City, Mo., and one of the largest banks in St. Louis by market share, has grown its Family Office this year to serve 75 families—for customers with more than $25 million in liquid assets.
“We’re beefing up our staff and hiring people with more experience,” says Ray Stranghoener, president of the St. Louis-based Commerce Trust Co., a division of Commerce Bank. “We think there are a lot of people who want the convenience of consolidating their affairs in one place.”
Commerce’s trust division has been on a growth spurt for the past decade, with its trust business growing from 6 percent of the bank’s profit in 2000 to 17 percent currently. In the past five years, its asset management sales for fees on newly acquired business grew to $8.2 million in 2010 from $5.9 million in 2006.
Sometimes the banking relationship even strays into areas only tangentially related to finance.
“We’ve seen a lot more families, in addition to core investment expertise, they’re more interested in noninvestment topics like family education for the younger generation, family governance and how to make decisions,” Stranghoener says. “More people are interested in someone to get them organized.”
The tumult in the stock market during the 2009 credit crisis drove many people to banks for wealth management expertise, according to Commerce Bank Chairman and CEO David Kemper, who talked about Commerce’s trust growth at the bank’s annual meeting in April.
Commerce Bank, unlike some of its competitors, grew its net interest income and noninterest income over the past three years, and the bank’s dividend has increased for the past 42 years.
“One thing the last several years has proven is that a lot of people who want their assets managed want a strong financial institution with its own capital with staying power, with probably a little more long-term conservative approach to what they’re doing,” Kemper says.
In other words, not Bernie Madoff. Some bankers are finding that their rich customers take comfort in big corporate brand names over hotshot hedge fund managers.
At PNC Bank’s local wealth management office in Clayton, Mo., high-net-worth individuals can expect a minimum of three bank staff assigned to their accounts to answer any financial question they have, and the consultation goes far beyond investment advice.
“We take a holistic view of a person, from retirement to cash-flow planning to estate planning,” says Maurice Quiroga, managing director and executive vice president of PNC Wealth Management’s office in Clayton.
PNC Bank is working on new online services for its wealth management customers so they can access income projections on their smartphones and contact PNC’s wealth management staff with questions about their accounts via email or text message. Those services are expected to be rolled out by the first quarter of 2012.
The increased focus on growing wealth management has caused many banks to hunt for high-profile talent. In late June, Clayton-based Enterprise Bank & Trust hired Joseph Gazzoli as chief executive of Enterprise Trust, its wealth management and trust business. Gazzoli most recently worked at AHM Financial establishing its asset management business and formerly headed the asset management for UMB Financial.
“We’re staffing to do it very well,” says Enterprise Bank executive Peter Benoist. Benoist said Enterprise Trust was growing its wealth management client base locally and at its branches in Arizona. Many of its wealth management customers are business owners who didn’t spend a lot of time or attention on their investments until the recession.
“From a personal planning perspective, we’re seeing a sense of urgency from them now,” Benoist says. “They know it’s critical.”
(c) 2011, St. Louis Post-Dispatch.