Wealth Biz Buzz

The first rule of holes is when in one; stop digging.  

Yet, when assessing the performance and structure of wealth management programs at banks, we continue to witness an inordinate number of institutions grasping tightly to suboptimal business models.

This is frequently prevalent in bank brokerage and bank trust departments (and/or RIAs).

In future posts we will touch upon specific remedies for releasing this stranglehold grip, but in this entry our focus is on trumpeting the need for change and the consequences for hanging on too tightly.

According to the FDIC managed assets in bank trust department continue to decline. From the end of 2001 to June of 2010 banks lost $270 billion of assets or viewed from a different perspective 270,000 million dollar accounts. Performance between December 2009 and June 2010 shows a loss of $410 billion in those six months alone.

Here’s how Chip Roame of Tiburon Advisors recently characterized the challenges bank trust departments face:

“The traditional bank trust model is dead…institutional banks are spending resources tweaking an outdated business model, all while losing huge market share to smaller, independent trust companies”.

I know what they say about statistics being fungible, which is a nice euphemism for damned lies, but when almost every number you look at from a variety of respectable sources draws the same conclusion, you might want to take a whiff of the java.

Schwab since recovering from its Northern Trust debacle crossed the billion-dollar threshold, trailing Fidelity Trust at $6.5 billion and National Advisors Trust at $6 billion.

While these numbers may not seem terribly large, I think Satchel Paige’s “figurative something” might be gaining on bank trust departments.

Across the aisle in broker-land, the results are not any rosier. Even though the public capital markets dwarf bank deposits (which have risen dramatically since the economic tsunami), we cling to deposit penetration benchmarks as the holy grail of success. From our perspective, while keeping an eye on penetration is important, it is also limiting. The guy or gal at Ed Jones doesn’t have any deposits per se nor does the fellow at the wirehouse across the street (which of course now might be a bank), yet the average Morgan Stanley advisor produced $682,000 in 2009, Merrill brokers putting up GDC of $836,000 and bank brokers delivering a paltry $188,000.

More damn lies and statistics?  Go ahead then and cut the wirehouse guys numbers in half and double the bank brokers’.

Of course, this seems odd, as before the recent vilification of banks, banking was consistently rated as one of the most trusted professions. This coupled with established client relationships would seem to be the secret sauce of success, but alas, true success in making brokerage more than a rounding error has eluded many institutions.

What we need to be asking if the public markets are three times larger than bank deposits, then why aren’t the assets under management at banks, three times larger than deposits?

In any event, we have heard ad nauseam how much money is in motion and about the rapid growth in the RIA and independent trust space, yet it seems that we continue to avoid making the hard choices which are necessary to realize the full potential of these two increasingly important business lines. Fees are squeezed and wealth management is an area that can deliver for banks if they stop beating that poor dead horse.

From our perspective, there are four major areas influencing banks’ ability to effectively optimize results in their trust and brokerage business lines:

➢ Culture
➢ Competency
➢ Corporate Structure
➢ Compensation

In future posts we will cover specific steps in each of these areas, showing you how to get on a horse that will cross the finish line ahead of the pack.

If you decide to stick with your old steed, then you may want to implement the following tactics, assuming you have not already:

➢ Buy a stronger whip
➢ Change riders
➢ Appoint a committee to study the horse
➢ Visit others to see how dead horses are ridden elsewhere
➢ Providing additional funding to increase the horse’s performance
➢ Create a training session to increase riding ability