U.S. Bank is bulking up its wealth management business. Since 2008, it has been on a hiring spree, recruiting talent from rival firms to lead various units of the business in different regions. At least 12 high-level executives joined the group, six of whom assumed newly created roles within the bank’s wealth management division.
“The bank loves the business. We’re good at it and we expect to be much bigger at it in the coming years,” said Mark Jordahl, president of U.S. Bank Wealth Management, in a telephone interview.
The bank, which has an advisor force of about 530, has been investing heavily not only in terms of hiring new people and training staff but also in technology, which Jordahl said was in the millions. “Technology enables the best tools and the best content to get to the team members,” Jordahl said.
The investment seems to be paying off, as revenues have inched up, at least over the last year. In the fourth quarter of 2012, wealth management generated $150 million in revenue, up 8.7% from a year earlier, according to the bank’s latest earnings release.
The best indicator, however, of the bank’s build-out of wealth management is in the fees and commissions from securities brokerage, said Michael White, president of Michael White Associates, a consulting and research firm based in Radnor, Pa.
Of the 532 bank holding companies that reported securities brokerage fees and commissions in 2011, U.S. Bank ranked 14th in production, up four spots from the previous year, which is no easy feat to achieve, according to White. The bank made even greater gains in terms of brokerage’s contribution to non-interest income, contributing 1.63%, which put them in spot no. 369, up 45 places from a lowly no. 414 in 2010.
“They’ve been going great guns,” White said of U.S. Bank’s wealth management business.
It’s a very fragmented market, so there’s a lot of opportunity.
The business consists of three units, each catering to different segments of the wealth market. Ascent Private Capital Management, launched less than two years ago, targets ultra-high-net-worth individuals with more than $25 million in investable assets. The Private Client Reserve aims its services at the high-net-worth market, or those with investable assets between $1 million and $25 million. And the Private Client Group caters to the mass affluent with more than $100,000 in assets.
Jordahl’s top goal is to make sure that each segment in the group is providing clients with what he describes as a “customized client experience.” “The competitive advantage that anybody has in this space is really the relationship with the client, and the relationship with the client is a function of the team you put in front of the client,” he said.
While the client experience is a top priority, Jordahl nonetheless has to keep his eye on meeting the aggressive growth objectives the bank has set for the business. “Given the investments that we’ve made in the business, we expect robust growth,” he said.
The bank anticipates the greatest growth to come from the Ascent unit, which, while smaller than the other units, has been “growing very handsomely,” Jordahl said. The bank would like to see the unit grow at a double-digit rate.
That, however, may not be easy, given the competition for a relatively small number of ultra-high-net-worth households, according to analysts. “They have their work cut out for them,” said Rick Rummage, the founder and CEO of the Rummage Group, a career consulting group specializing in the financial industry. “As account sizes get larger, competition gets greater,” he said.
White of Michael White Associates agreed. “It gets very crowded up there,” he said.
Private Client Reserve, the division’s biggest business unit, might be easier to grow. “We believe we’re taking share from the market. It’s a very fragmented market, so there’s a lot of opportunity,” Jordahl said of the Private Client Reserve. “We expect that business to grow at a double-digit growth rate as well.”
Jordahl also sees a “terrific opportunity” in the Private Client Group, given the size of the mass-affluent market, the largest wealth segment. “When we think about the potential growth rate over the next decade, we have really high aspirations for the Private Client Group,” he said.
While the bank has focused on the upper tiers of the wealth market, it has not forgotten the mass market, or those with less than $100,000 in investable assets. The bank has plans to pursue this market more aggressively with “more of an online proposition” that is “more standardized,” Jordahl said.
Pursuing a multi-segment approach, of course, is nothing new. What sets U.S. Bank apart is that it started to implement its vision earlier than did rivals, such as Chase and Citigroup, particularly in targeting the middle tiers of the high-net-worth market, said Sophie Schmitt, an analyst with independent research firm Aite Group. U.S. Bank also had a head start in terms of implementing “an integrated, consolidated, one-bank offer” that links banking and brokerage, according to Schmitt.
Schmitt pointed to the bank’s new online brokerage site launched last year, which integrated checking account and other banking services with brokerage, helping to create what she called a “one-bank experience.” To its credit, she said, the bank also aligned its compensation policy with its plan to create that “one-bank experience” by rewarding advisors for growing the “total relationship” rather than growing sales of certain products.
“They’re a bank to watch,” Schmitt said of U.S. Bank.
Rummage is also a fan. “It’s one of the best in the country,” he said of the bank’s wealth management program. In addition to offering advisors high payouts and strong transition packages, the program has robust technology and a deep product mix.
Rummage warned the big players in the space—namely Morgan Stanley, Merrill Lynch and UBS—to be very careful. “Banks like U.S. Bank are going to take their business,” he said.
