City National Bank of Florida in Miami wants to expand its wealth management business, and it has a plan to do it.
Hundreds of people move to the Sunshine State every day — many bringing substantial personal wealth with them. So the $21 billion-asset City National put together a team, led by private bankers, dedicated to making the relocation process as smooth as possible.
The team helps affluent individuals and families choose neighborhoods, schools and doctors. It also makes introductions to civic associations and recreational groups, provides assistance in establishing Florida residency, and, in some cases, makes loans for homes, investment properties, yachts and even fine art.
Illustration by Richard Borge
“What we’re trying to do is make the process as easy as we can, by creating a concierge-style service throughout the transition,” City National CEO Jorge Gonzalez said about the initiative, which launched in 2021. “Anything you can possibly imagine people need when they relocate, we’re doing our best to facilitate them.”
That’s not all the bank is doing in this space. It also unveiled a new brand, City National Private, to meet the needs of small business owners and high net worth individuals.
All this is meant to give City National a competitive edge in the increasingly crowded wealth management field — a “hypercompetitive” sector in South Florida, as Gonzalez put it.
Bank of America’s Merrill Lynch has been adding client teams in Florida to take advantage of the same wealth influx that City National is targeting. The Toronto-based asset manager CI Financial, which spent much of 2021 snapping up U.S.-based advisory firms, plans to set up a home base for its U.S. operations in Miami. Deutsche Bank, which has been steadily bulking up its wealth management business in Miami, said in February that it’s now targeting Palm Beach, Naples, Tampa Bay and Jacksonville.
But this heightened competition in wealth management isn’t just a Florida thing — it’s happening among banks of all sizes all from coast to coast. Driven by client demand, the lure of more fee income and the opportunity to benefit from what is expected to be one of the largest intergenerational wealth transfers in history, banks are expanding and retooling their wealth management operations to deepen customer relationships and appeal to more clients. In some cases, banks are new to the segment.
Citigroup reorganized its wealth management units under a single umbrella last year as part of a plan to “double down” on wealth management as a growth business. HSBC stepped back from retail banking in the United States to try and win over more globetrotting clients from the affluent and high net worth segments. Royal Bank of Canada is on the lookout for smaller acquisitions to build out its wealth management units in the U.S. and Europe.
Regional and smaller banks are taking similar steps. Last year, SVB Financial in Santa Clara, California, paid $900 million to acquire Boston Private Financial Holdings rather than start its own wealth management business. Old National Bancorp in Evansville, Indiana, hired a well-regarded industry veteran to oversee investment strategy and wealth management services. And Texas Capital Bancshares in Dallas started aggressively courting financial advisors as part of an effort to double the number of client-facing professionals by the end of this year, while it continues to explore acquisitions of registered investment advisory firms.
Expanding in wealth management is a good idea for most banks, said Jim Edrington, chief member engagement officer at the American Bankers Association.
“If you get your clients’ wealth business, that’s long-term money,” he said. “And if you can engage your clients and the next generation, that’s even longer-term money and longer-term relationships.”
Banks, of course, aren’t the only players in the wealth management game. National and regional broker-dealers, independent registered investment advisory firms and fintechs, among others, are all out to snag more of the wealth market.
The Swiss-based powerhouse USB Group is buying Wealthfront, a digital-only wealth management platform in the United States. Goldman Sachs rolled out a robo advisor, Marcus Invest, last year. Morgan Stanley acquired the discount brokerage E-Trade Financial in 2020. And the number of RIA firms keeps growing.
With so many banks moving in the same direction, will they all be able to succeed?
Answer: No.
The competition, bankers and industry observers say, is too fierce for everyone to get a large enough piece of the pie — even if it’s a very, very big pie. In the banking industry, what will separate the winners from the losers will be how well each bank attends to the full financial life of each individual client. The effort will require not just a large upfront investment — of time, talent and capital — but also a long-term commitment to the business.
“It’s really important to try to create some differentiation,” Gonzalez said. “People that have wealth recognize the level of business they are bringing to a financial institution, and in turn expect individualized attention and banking services that are targeting their unique needs.”
Attracting good advisors, offering a robust digital platform as well as client-segment-specific services across wealth and other lines of bank business will go a long way in helping banks prosper in this business, said Jill Jacques, the global financial services leader at North Highland Consulting, an Atlanta-based firm that helps banks develop wealth management strategies.
“The more that banks can show all of a client’s financial life, in an easier way and in a seamless way, and provide interaction with an advisor where and when a client needs it, that’s where they will win,” Jacques said. “If they can’t do that, if they have a product-first, siloed mentality, they won’t succeed.”
Business is booming
Banks have long been in the wealth management business — trust services have been offered at some U.S. banks for well over a century — but there’s still lots of room for expansion.
The renewed focus on wealth management is driven by several factors. For one, the prolonged low-interest-rate environment has squeezed banks’ margins for years and put pressure on them to generate more fee income. Wealth management, which by its nature is a more predictable form of income, fits the bill.
Second, there is a genuine untapped market to serve. Certain client segments — “mass affluent,” which refers to households with $250,000 to $500,000 of investable assets, and “affluent,” those with investable assets between $500,000 and $1 million — are underpenetrated in terms of wealth management services. Banks want to pull those folks into the fold, not only to derive fee income but to establish a comprehensive financial relationship with profitable customers.
And there’s more wealth out there to manage. In 2020, despite the brief but painful reduction in global household wealth that coincided with the early days of the pandemic and recession, total wealth actually grew as the economy began to rebound.
Globally, the wealth of high net worth individuals — those with $1 million or more of investable assets — rose 7.6{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} in 2020 to $79.6 trillion, according to Capgemini’s June 2021 World Wealth Report. The biggest high net worth wealth growth compared with 2019 was 11.9{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}, in North America, according to the report.
And not only is there more wealth, but there are more high net worth individuals than there used to be. Worldwide, the number of such individuals in 2020 was 20.8 million, up 6.3{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} from 2019, Capgemini said. In the U.S. that population grew 11.3{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}, in large part because of growth in the stock market.
By a conservative estimate, $70 trillion is expected to change hands over the next two decades as baby boomers, who hold more than half of all the wealth in the U.S., enter retirement and begin passing most of their assets along to succeeding generations.
This transfer “has elevated wealth management as a strategic focus — and that’s at all banks, not just large national and global institutions,” said Rob Wrzesniewski, who leads global banking solutions at SEI, a consulting firm in Oaks, Pennsylvania.
“Banks are skating to where the puck is going, and that’s driving their investments in both platforms and talent,” he said. “It’s driving bank leadership to look at wealth management as a growth engine. Most importantly, it’s driving their capital expenditure decisions on build versus buy versus partnering.”
By 2025, wealth management advisors will be serving five generations, the ABA predicted in a 2019 report, “The Changing Face of Wealth Management.” The wealth that is being transferred is a mix of investable financial assets such as equities and bonds and non-financial assets such as personal real estate, privately held business interests and oil and gas rights. Most of those assets will go to members of Generation X and millennials, according to the report.
The impending transfer of wealth from the older generation to younger ones could go one of two ways for the banking industry. It could be an “unprecedented opportunity” or it could be “a threat … depending on whether banks can adapt to a new type of client and a bespoke business model,” the ABA said. Since the majority of the wealth will go to Gen X and millennials — “two generations that have very different spending, savings and lifestyle habits,” the report noted — banks will have to tailor their wealth management services to both groups’ demands.
One of those differences is that both tend to pay more attention to environmental, social and governance issues than older generations when it comes to investing. But Gen X members generally save less than millennials, many of whom came of age during the financial crisis, and trust financial institutions more readily than their younger counterparts. Notably, millennials are digital natives who are more comfortable pursuing robo-advising and using social media to make decisions about how to invest, the ABA said.
“It’s really an opportunity for the industry to work together to better serve the needs of customers, but more importantly to ensure that a good chunk of [the wealth] stays within the industry,” Edrington said.
The personal touch
So if wealth management is the name of the game, different banks are taking different approaches to winning it.
Some have turned inward, ditching the traditional sales and marketing approach in favor of a relationship-centered model that encompasses a client’s entire financial life. Others are looking outward, recruiting teams from other banks and wealth management firms — and in some cases buying those firms. Almost all are investing in technology as the demand for digital products and services continues to rise.
In practical terms, the ramp-up entails hiring and training more financial advisors, entering new markets and boosting one’s digital prowess, either by building it in-house or partnering with fintechs.
The biggest U.S. commercial banks — JPMorgan Chase, Bank of America, Citigroup and Wells Fargo — are doing all of the above and more. Last year, JPMorgan acquired a digital wealth management firm in the United Kingdom and scooped up OpenInvest, a San Francisco-based startup that provides environmental, social and governance investment management products and impact-reporting services that can be used by financial advisors and investors. At the same time, Bank of America developed a training program for those interested in becoming financial advisors, and continued to target specific geographic markets in the U.S. where it has room to grow in wealth management.
Meanwhile, Citigroup combined two wealth management units into a single global division; set up four “wealth hubs” in London, Singapore, Hong Kong and the United Arab Emirates; and hired a net 800 advisors and relationship managers to deliver more growth. And Wells Fargo, which last year folded its ultrarich brand, Abbot Downing, into its private bank, is paying more attention to its independent broker channel and its online-trading business, and linking more financial advisors to bank branches.
The optimum spot for banks is to acquire clients with $1 million to $5 million of investable assets, and maybe even lower at some banks, said Mark Fitzgibbon, an analyst at Piper Sandler. Though they are “competing with everybody,” including companies such as Charles Schwab, Fidelity and Robinhood that offer do-it-yourself investing, banks would be wise to adopt a high-touch approach.
“I think they will compete on service and personal touch and conservative business, and for customers who are interested in that, those banks will do just fine,” Fitzgibbon said.
At Citizens Financial Group in Providence, Rhode Island, executives have been vocal about their desire to expand the $188 billion-asset company’s wealth management business, in large part by taking a more personalized approach. In addition to staying current with technology platforms and creating a first-of-its-kind centralized advice group of 25 certified financial planners, Citizens is offering financial advice and planning to every customer who walks in the door seeking wealth management services.
The financial planning will be free for most people, though there may be fees for more complex cases.
“The stake in the ground for Citizens is that we’re going all in on the financial planning approach,” said Chris Weyrauch, who joined Citizens as head of wealth management in April 2021. “So whether the client enters Citizens through the virtual financial advisory network or through the ultrahigh net worth or high net worth network, what they can expect is a very consistent, high-quality, robust financial planning experience. That’s how we will differentiate ourselves.”
At the same time, the bank is mulling more wealth management acquisitions. Its latest, of Clarfeld Financial Advisors in Tarrytown, New York, was in 2019. It is also investing in employees. Last year it rolled out a training program that’s as much of a skills-development initiative as it is a tool to attract and retain financial advisors.
The plan is to double Citizens’ assets under management — currently around $23 billion — within five years, said Weyrauch, who came from TIAA, where he oversaw the management of $400 billion of assets under administration for more than 425,000 high net worth clients across the U.S.
The company completed 7,000-plus financial plans in 2021 and expects to nearly triple that number this year. And there could be more to come. According to Weyrauch, Citizens’ customers have considerable investable assets — more than $1 trillion — that are not currently part of their relationship with Citizens.
SVB Financial has also done the math on potential new assets from existing clients. The company, which caters to the startup community, has identified about $400 billion that it could capture among current clients. The figure includes potential wealth management assets, loans and deposits.
That figure doesn’t include the broader innovation economy, said Anthony DeChellis, a former Boston Private CEO who is now SVB’s chief executive of private banking and wealth management.
Numbers like those show that banks of all sizes could leverage their existing client relationships to take more market share, Wrzesniewski said.
Despite robo-advising and do-it-yourself wealth platforms, “there is still something about the trusted relationship that banks have with their clients,” Wrzesniewski said. “I think it’s special and I think they can deepen that [and] create even stickier relationships with clients by expanding into this space.”
At SVB, meeting the demands of startups and technology companies, and their often very wealthy founders and owners, is essential to becoming a leading wealth management provider, DeChellis said. “Where we look to distinguish ourselves is when it comes to dealing with innovators and entrepreneurs. We think we understand these clients probably better than most financial services firms out there, if not all financial services firms out there.”
Growth opportunity
This retrenchment of banks’ wealth management businesses is already paying dividends. Income from fiduciary activities among banks totaled $31.8 billion through the first nine months of 2021, according to data from the Federal Deposit Insurance Corp. That’s up 11.3{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} from the same period in 2020 and an increase of 15{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} from 2019.
At Bank of America, asset management fees last year rose nearly 19{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} to $12.7 billion. At Citizens, wealth management fees climbed 18{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} to $240 million. And the $13.2 million that Texas Capital reported in full-year wealth management and trust fees was up nearly 32{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} from 2020.
The $34.7 billion-asset parent of Texas Capital Bank identified wealth management as a pillar of a strategic plan announced in September 2021. It ended the year with $2.7 billion of assets under management, adding almost $900 million over the 12-month period, according to Alan Miller, president of the bank’s Private Wealth Advisors division, which operates as a registered investment advisory firm.
As part of the plan to expand fee income from about 9{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} of revenue to 15{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} to 20{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} within the next three or four years, the company recently created a chief administrative officer role and hired John Cummings, who had been Citigroup’s head of wealth advisory, for the job. He will be in charge of multiple lines, including the consumer banking and private wealth units.
At the $24.5 billion-asset Old National, wealth management fees also grew 10{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} to $40.4 million last year, according to the company’s fourth-quarter earnings release.
The improvement comes amid myriad changes to the company’s wealth management strategy. For years, the three pieces of the businesses — trust, brokerage and personal banking — tended to operate in silos, said Chady AlAhmar, Old National’s CEO of wealth management since early 2020. All three were growing, but they were disjointed and the client experience was inefficient, he said.
In January 2020, under newly installed CEO Jim Ryan, the company unveiled a plan to transform Old National into a commercially oriented regional bank emphasizing client relationships. The plan is centered on three distinct business lines, including a wealth management arm with a private-banker-led approach rooted in financial planning.
Last summer, the bank made a significant move in the wealth management space by hiring a trio of private bankers who came from Wells Fargo’s Abbot Downing brand. The group includes Jim Steiner, who, from 2011 to 2020, helped Abbot Downing grow from $26 billion of assets under management to $48 billion.
Around the same time, Old National opened an office in Scottsdale, Arizona. More wealth management offices are in the works, as is a rebranding initiative that is expected to launch sometime this spring.
The company is also acquiring two RIA boutiques, one in Chicago and one in Milwaukee, through its $2.5 billion deal to buy First Midwest Bancorp.
The bank aims to increase revenue in the double digits and double assets under management within the next five years through organic and inorganic means, AlAhmar said. Including business that it is gaining from First Midwest, Old National will have 350-plus wealth professionals and $33 billion of assets under management, which will produce more than $120 million in annual wealth-related revenues, he said.
“As a midsize bank, we’re in this Goldilocks position,” AlAhmar said. “We’re not very large … and we’re not very small. We’re in this sweet spot, and we believe the focus should be on the client experience.”
He added, “That is the space where we want to be, and the key to getting there is to add all the functions of wealth management so that we can surround the clients with all of the services that they need.”
That strategy is similar to the one playing out at City National. The value proposition is simple, according to Gonzalez: The bank has enough scale to deliver the same solutions, technology and products as larger banks while also feeling like a community bank with access to leaders and customized service.
Since establishing City National Private in early 2021, the bank has welcomed 70 new high net worth clients, Gonzalez said. It is also boosting its market share in key markets like Orlando, Miami, Tampa and Jacksonville thanks to organic growth, new hires and increased lending.
Florida newcomers “value the relationship-focused approach to banking we offer, and many have come to rely on [us] as a critical partner,” Gonzalez said. “They appreciate the fact that they can pick up the phone and connect with a decision maker who is familiar with their business and understands the local market. In many cases, they’ve never experienced this level of service in their prior banking relationship.”
May the odds be ever in your favor
According to Capgemini’s “Wealth Management Top Trends 2022” report, wealth management entities, including banks, will “continue to face significant revenue and margin pressures.” As the fight for market share goes on, competition “is becoming historically intense [and] client experience is the new battleground.”
The $70 trillion wealth transfer spells a huge opportunity for banks, Jacques said. The problem is that “nobody has that strategy perfected, or even close to good, yet,” she said.
One challenge is that the client profile is changing as more women, Hispanics and members of the LGBTQ+ community enter the wealth management pool. At the same time, more clients prefer to engage through digital wealth management channels.
Banks will need to make certain adjustments, said Nilesh Vaidya, Capgemini’s global industry leader in retail banking and wealth management.
“In the past, the [financial] advice was from people who were used to working with baby boomers,” Vaidya said. “Now, the generational transfer is changing how the advice is given and who the advisors are,” while also creating more demand for investments that align with social and sustainability goals, he said.
Banks are starting to devote more attention to those areas, Jacques said. There has been more awareness around employing a diverse group of financial advisors, and some banks are starting to think about how they can adjust their financial planning tools, processes and technology to be more inclusive.
“Many discussions revolve around the idea of growing individual wealth. That is a traditional construct,” Jacques said. “If diverse populations define success differently — such as ‘How can I use my money to enable success for my family and make my community better?’— then banks and wealth management firms need to change their positioning from growing individual wealth to facilitating family-unit or community growth.”
The bottom line: Banks have an advantage over nonbank competitors, and that lies in their existing personal relationships, which will pay off as long as banks can keep up with technology, make sound hires and keep the client experience at the center of everything.
“Those who succeed are those who not only invest now and prioritize it now, but those who make long-term capital commitments to be relevant in this space,” Wrzesniewski said. “Making those commitments to be not just good, but the best they can be, is really what it’s going to take.”
John Reosti contributed to this story.
