With many people chasing higher investment yields because theyre earning little off their bank accounts, community banks see an opportunity to offer private banking services. Charles Davis reports
A growing number of smaller US banks and credit unions are getting into wealth management services, once the sole province of very large institutions.
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This is seen both as a way for banks to retain their most lucrative customers and a buttress against declining revenue streams on the retail side of the ledger.
The past few weeks have seen banks such as Iberiabank, First Midwest Bancorp and Webster Financial all state that they are intrigued by the private banking business and are looking to expand it through acquisition, if possible.
25% profit margin within 3 years for wealth mangement start-ups
Money Concepts, which manages turnkey wealth management services for about 75 small US banks, is experiencing heightened interest as institutions that were content with lending and retail banking a few years ago go in search of new revenue streams.
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By GlobalDataThe numbers are attracting interest: A bank can expect an average profit margin of 20% to 25% within two or three years of starting up a wealth management operation, according to Barry Dayley, executive vice-president of Money Concepts International.
Dayley says now more community banks and credit unions see wealth management as a core function one that helps them keep their best customers while also generating profits.
"Were seeing a lot of interest in turnkey wealth management programmes at the $75m to $200m bank asset range," Dayley says.
"We start simply by looking at the wealth within the branch. Its always surprising how many wealth management customers there are in these smaller banks who are unaware that they are wealthy, let alone need special services as a result."
New customers are already in your bank
Dave Dixon, who heads Webster Private Bank, said that in his banks case, its growth in private banking came from looking at its customer base and coming to the realisation that the revenue per client relationship was multiples higher in the private bank.
"The simple realisation was that we have a lot of people already loyal to our institution and we have more work to do to turn them from banking customers into private banking customers," Dixon says.
"Working from within our own customer base lowers our acquisition costs and raises our close rates."
Webster has doubled its team of private bankers to about 50, Dixon says, concentrating on its Connecticut base in the hotly competitive East Coast corridor.
The company also recently started a marketing push for Webster Private Bank to raise awareness as it grows its wealth business, but he is quick to add that, for now, the major focus is internal.
"More often than not, the initial conversation comes from an existing retail product a customer in for a mortgage refinance, for example, and that leads us to the discussion of what they are trying to do financially, and thats a real eye-opener for them," he says.
"It sounds odd, but a lot of these people are not aware of their own wealth. They just never thought about wealth management as something they need."
Private banking to compensate for slowing retail revenues
Ultimately, Dixon says, Webster is looking to private banking as a way to compensate for slowing retail revenue streams, as are most smaller institutions that are getting into the wealth business.
"The headwinds on the retail side mean that fee revenue through managing assets is really attractive," he says.
"That segment that has money not millions and millions, but maybe just a million is the huge opportunity out there for us."
Doug Ralston, president of wealth management at Trustmark National Bank, a unit of Trustmark Corp in Mississippi, says his private banking operation is benefiting directly from its more demure size.
He sees clients "all the time" who contact Trustmark after growing weary of their bigger bank relationships.
"Its almost always service-related," he says.
With a full private bank with about 160 employees in brokerage, trust, private banking and insurance under his direction, Ralston can offer wealthy clients all the services they are accustomed to but in a much more personal way.
Trustmark hub-and spoke approach
Ralston says Trustmark reorganised its wealth management business into a hub-and-spoke approach, where clients are shared across multiple departments.
A client might have a financial plan drawn up by Trustmarks in-house, across-the-bank financial planner, meet with brokerage to map out asset management strategies and have a will drafted by the trust department.
The main relationship manager, who is the person who brought the customer into the bank, manages all of this, Ralston says.
"That way, in every discussion with any department, that clients primary advocate is in the room," he says. "Big banks have become so big that customers are fleeing them, particularly at the higher end, and so the smaller end of the market has to be more efficient but also much more hands-on."
Ralston says that with so many people in search of higher investment yields because theyre earning so little off their bank accounts, this is a great time to expand wealth management further into the bank.
"Were looking at every small business relationship we have, and were joined at the hip with the cash management people, looking for opportunities," he adds.
