Bank private client groups have really been up against it in this low interest rate environment.
They have pressure coming at them from a couple of directions — their parent banks have turned up the heat on them to grow, while the competition from RIAs, traditional full-service brokerages and large online brokerages has intensified.
How can they meet this challenge?
They must strengthen their relationships with the commercial banking divisions of their institutions, beef up their sales cultures, expand the menu of services they offer clients and do a better job of tailoring investment planning to a client’s specific goals, according to a study and an industry consultant.
“A big opportunity is converting high net worth customers who are already customers in other divisions of the bank,” said William Whitt, the author of a study by the research and advisory firm Aite-Novarica Group of Boston that outlines what bank wealth managers can do to reinvigorate their growth.
“This is especially true when it comes to the commercial banking division,” he said, “which serves small and medium-size business owners and top executives in large businesses. The wealth managers have to get referrals of those clients.”
Whitt also said bank wealth managers must adopt a more aggressive sales culture. Over the past two decades, he said, nearly all bank private client groups have abandoned the traditional “hunter” model that employed business development officers to seek out new business. Instead, he said, they are employing a hybrid “hunter-farmer” model where wealth advisors must bring in new clients and service their existing book of business. This model leads to a more comprehensive approach to financial planning, but those books are large, said Whitt, and consequently the advisors spend more time servicing existing clients rather than bringing in new ones.
In addition, a conservative approach to compensation and a reluctance to make incentive compensation the largest component of advisors’ pay has meant that these wealth managers have had a hard time attracting top talent and converting new business opportunities.
In the report, Whitt used a case study of a bank with a successful formal partnership between commercial bankers and wealth managers. Wealth managers became part of the commercial banking team, attending meetings with clients. The bank changed how it reported new business to create greater awareness of business opportunities for wealth managers. And each commercial banking group was directed to introduce a certain number of its clients each year to the wealth advisor with whom they were partnered.
“They also developed a targeted prospecting strategy,” said Whitt. “The wealth advisor and commercial bank would review the commercial banker’s book of business and zero in on people who are most likely to transition their business — money in motion.”
He said the bank also changed its reporting procedures so the executive team, private client business and commercial bank could track the success of the initiative. In addition, the private client group produced thought leadership on key wealth topics, “giving wealth advisors a reason to be in front of the commercial bankers and providing them with insights about the wealth market they could share with clients to build the brand of the bank in the mind of the client,” he said.
And the bank established a team of specialists with business advisory capabilities focused solely on business transition planning, Whitt said.
“But the formal pairing and the goals and incentives you give to commercial bankers, those are most important,” he said. “You have to do that for anything to work at all.”
And Whitt said the bank has measured the success of this initiative — how much of the commercial banking relationships have been penetrated on the wealth management side. He said for most banks, this is in the single digits, about 7% to 10%, but this bank, after eight years, built a wealth advisory relationship with 23% of its commercial banking customers, up from 8% or 9% at the start.
Whitt said the decline in assets of high net worth investors in the U.S. managed by bank private client groups began 20 or 30 years ago when big broker-dealers, wirehouses and RIAs started becoming more competitive in the high net worth marketplace.
The study says in 2020, broker-dealers managed almost $3.6 trillion in such assets, RIAs almost $3.1 trillion, and bank trust divisions almost $2.9 trillion.
In the end, Whitt said, the value clients get from bank wealth managers has simply not kept pace with what is being offered by RIAs.
Lou Diamond, president of Diamond Consultants in Morristown, New Jersey, agreed, saying there are several ways bank wealth managers can augment what they offer clients.
“They can take a page out of the RIA playbook,” he said, “just by adding more services that make them that much more necessary to the client, like tax preparation, estate planning services, trust services, if that is not already included, and family office-type services, like governance, bill pay, lending — high-touch services that make the financial advisor more of a financial quarterback for the client.”
He also suggested that bank wealth managers become more open architecture — offering more boutique or undiscovered managers, private investments, real estate deals — thus curating a more unique set of options for clients.
He noted that RIAs are more differentiated on alternative investments and to compete, he said private client groups must be as well.
Also important, said Diamond, is the development of more next-generation team members at banks, which he said can be more difficult than at RIAs.
“RIAs don’t have training programs but can offer unique hands-on training, like an apprenticeship,” he said. “And they can use equity as a tool to attract and retain advisors and top talent, which banks can’t really do.”
Larry Restieri is co-head of Goldman Sachs’ Personal Financial Management Group, which includes Goldman Sachs Personal Financial Management where Goldman serves high net worth clients, those with $1 million to $10 million in assets, and Ayco Personal Financial Management, which manages company-sponsored financial planning benefits.
Personal Financial Management is the successor to United Capital, the RIA Goldman bought for $750 million in 2019. Goldman bought the Ayco Company in 2003 and made it part of the firm’s Private Wealth Management business.
Restieri said part of the focus for Ayco is working with the C-suite employees of the business's corporate clients.
“Every financial institution, even Goldman Sachs, has been trying to figure out how to get their silos to work better together,” he said. “It’s a valid point, to do things from a customer-centric rather than a bank point of view,” he added, addressing the recommendation in the report that banks have to do a better job of getting various divisions to work in concert for clients.
Restieri said Goldman has committees dedicated to coordination of different parts of the firm. “We’re better coordinated than we were at one point,” he said. “And that was a (Goldman Sachs President) John Waldron initiative, so that helps.”
As for the recommendation about beefing up sales cultures, Restieri acknowledged that a lot of institutions really don’t have sales cultures, but pair up people with different skill sets. “Some people are better at making a stranger a friend, others are good at working with clients and caring for their needs,” he said.
He added that advisors who are really rainmakers — those who can bring in clients and business — might be drawn to an RIA or investment banking, where they can make more money, rather than a bank.
