R.T. Whitman
‘Quality of advice’ key

As some consumers begin to reinvest their money in the stock and mutual fund markets, banks are striving to keep the assets of high-net-worth clients within the confines of the bank walls by offering more wealth-management services for the affluent client ready to reenter the fledgling bull market.

According to industry experts, millions of investors fled the stock market for financial safe havens, giving retail banks increased capital, but when the market turns around, the ability of banks to keep affluent customers and their deposits is in question.

Tim Connor, vice president and director of marketing at Milwaukee-based Metavante Wealth Management, a technology company for the financial services industry, said now is the perfect time for banks to review their wealth-management offerings for high-net-worth clients – those clients with financial assets of at least $1 million.

“This is perfect timing … the bull market is back based on second-quarter results,” said Connor. “What we’ve seen is that a lot of wealthy customers fled the stock market and have gone into the safety of banks. Banks now have a challenge – as the market comes back, what can [banks] do to show customers that they don’t need to leave. To do that, banks have to offer a wide variety of [investment services].”

According to Connor, banks operate at a disadvantage during good times, when high-net-worth consumers believe they can find more profitable places to keep their cash. But now, Connor said banks have the opportunity to show wealthy consumers the one-stop investing options available at the bank.

“Banks fortuitously captured the wealth because the market was so bad, and now banks have the opportunity to keep customers and let them invest in anything they want to and customers are looking for a trusted advisor relationship,” said Connor.

Connor said companies like Metavante provide the software and tools to keep consumers “inside the bank walls,” facilitating offerings that allow bank clients to walk across the isle to an in-house investment specialist employed at the bank instead of the client leaving the bank for an investment services firm or brokerage house.

Those concepts are not new, but the opportunities to employ them are perhaps greater now than ever before, and banks with investment services operations in place may benefit. FleetBoston Financial purchased broker-dealer Quick & Reilly five years ago in an attempt to keep consumers under the Fleet umbrella.

“Fleet bought the outside expertise so that customers didn’t go outside the bank,” said Connor.

Stan Gregor, executive vice president and managing director of investments at Quick & Reilly, said helping existing bank clients invest their money after making stock market mistakes has kept business brisk.

“We’re offering guidance to the client that in many cases have made some bad mistakes.

Banks have been flooded with trillions of dollars that have gone into core bank deposits. But there is a concern for all … institutions [with deposits insured by the Federal Deposit Insurance Corp.] – if the market gets hot, how do [banks] ensure that clients stay,” said Gregor. “We’ve taken the best of banking and the best of brokerage so the client has the opportunity to be as aggressive as they wish or as conservative as they wish. Our business is up dramatically … we have a sophisticated client base, we have dramatically up-scaled and changed our product offering and there is very little that the client cannot receive.”

R.T. Whitman, national director of KPMG Acumen, the business technology unit of KPMG, a global business advisory firm, said banks must invest in wealth-management services for high-net-worth clients or risk losing million-dollar customers.

“One of the problems that the market has experienced is that as the interest in high-net-worth individuals has been intensified, the [banking] expertise needed to intensify, and this is difficult to find,” said Whitman. “The quality of advice that banks can give will keep a $3 million client at the bank. At the top five brokerage firms, [customers] are going to business and conversion experts, estate planning and trust specialists and insurance experts … the local community bank is lucky if they have any of those experts on staff.”

‘Increased Communication’

At Boston Private Bank & Trust Co., wealth-management services for million-dollar clients is a core business focus and, according to Jim Dawson, president and chief executive officer of the bank, the bank’s asset mix has changed without changing asset totals.

Dawson said the bank’s investment management clients took their money out of portfolio accounts and moved them to cash or bonds when the stock market was down significantly, but since the bank currently offers investment management services, bank executives were not worried about losing high-net-worth clients.

“We are already in the business of offering wealth-management services so that our clients do have a choice to come as a deposit client or a commercial client,” said Jay Henderson, head of investment management business and executive vice president of the $2 billion bank. “We were and continue to be well positioned. When there was [concern] about the market, we were very proactive … clients want to have increased communication at a time of uneasiness.”

According to the 2003 World Wealth Report published by Cap Gemini Ernst & Young and Merrill Lynch, high-net-worth investors have switched their focus towards wealth preservation, risk management and service.

The benchmark report found the primary emphasis in financial decisions for high-net-worth individuals was heavily focused on wealth preservation and risk management, estate planning, tax planning and retirement planning.

The report said when selecting a financial provider, the criteria for high-net-worth investors were service quality, personal relationships with their financial advisors, valued advice and investment performance.

Industry experts identify personal relationships, good quality and sound advice as the driving factors that may help keep clients at a bank rather than going to a brokerage house.

Whitman agrees, saying banks of all asset sizes have the ability to retain affluent consumers by incorporating wealth-management services into the bank’s structure.

“We’re working with large international banks and offshore clients … the high end of the market clients, but the middle end of the market are regional banks and those dominate the state. The bottom end of the market would be the local and community bank. The Massachusetts marketplace is huge for these services … Boston has such a strong financial orientation,” said Whitman. “Because [wealth management] is [provided only] on demand and there are these [variations] of service, and people pay for what they use, none of those markets are really preemptive.”

Hiring third-party vendors to help a bank provide adequate investment services is common, and while the bank has to spend the money to outsource such offerings, in the end, advisors say the bank stands a good chance of keeping the high-end assets of its wealthy consumers, making the third-party relationship a profitable one for the bank.

Whitman said third-party products can offer a suite of services to help middle-market banks compete with the larger players in the financial advisory business for high-net-worth clientele, but it is up to the bank to maintain customer relationships and provide incentives for customers to stay at the bank.

“Banks are concerned about investment advice going to customers … when you go inside banks, employees have all different kinds of experiences,” said Whitman. “Banks have a relationship with their customers and say, ‘I can bring these people in to solve their problem.’ This is the human perspective. Customers have been working with the bank for generations – it’s an issue of the bank being able to get the horsepower they need to get the product.”

Melanie Nayer can be reached at mnayer@thewarrengroup.com.