It may go down as one of the most
topsy-turvy years in the history of private banking, but it is the
same old result for JPMorgan Chase, the perennial leader in the US
trust business. On a broader measure of wealth management, Bank of
America tops the rankings.

JPMorgan Chase again topped the list of banks in the ‘Who’s Who in
Bank Wealth Management,’ a comprehensive, 140-page study of the top
60 bank wealth managers published by the Bank Insurance Market
Research Group. The bank took first place on the basis of $8.07
billion in 2007 trust revenues.

In wealth management alone, Bank of America was ranked first with
$2.1 billion of net income from its advisory activities.

The annual study is intended to help “describe and define the
outlines” of the burgeoning bank wealth management industry,
according to its sponsors.

In places, the report is a grim reminder of what has been lost in
the tumult of the subprime mortgage meltdown and its economic
contagion as well as just how vital wealth management is to US
firms trying to iron the rough patches out of the rest of their
balance sheets.

The report hits the lowlights: Wachovia, hammered by the mortgage
loan crisis, suffered a $350 million first-quarter loss and fired
its CEO. Yet, earnings from its wealth-management business rose 10
percent during that period “as asset gathering overcame market
depreciation,” according to the company.

Bank of America’s first-quarter earnings plunged 77 percent. At the
same time, a company spokesperson called the company’s private
bank, US Trust, a “growth driver,” noting that its first-quarter
income grew 31 percent from the year-ago period.

Smaller players are enjoying success as well. At Rhode Island’s
Washington Trust Bancorp, where wealth management accounted for
nearly one-quarter of net income in 2007, the business arguably
buffered the bank from the turmoil that roiled the credit markets
in early 2008.

Analysts say focusing on wealth management has helped Washington
Trust weather the downturn in the credit markets better than most
banks its size and positioned it well for the future.

“Fee-based businesses like wealth management can help smooth out
earnings when loan income suffers – as banks’ experiences in early
2008 attest,” the report said. “But institutions’ focus on
high-net-worth (HNW) individuals – those with $1 million or more in
investable assets, say – has been going on for some time now, and
it is likely to continue even when the credit crisis abates.”

The report said that banks aim to grow their fee-income businesses
in order to be awarded those higher price-earnings multiples from
financial analysts and investors. A strong wealth management
business can help boost a bank’s core deposits, too – something of
particular interest these days.

Increasingly, the “excess liquidity” that is generated in many bank
broker/dealers – which in the past might have been deposited in a
money-market account option – is now often swept back to the parent
bank, turning wealth management into a positive driver of core
deposits.

The report found that suppliers, too, appear to be focusing more on
the HNW segment within banks. It cited Nationwide Financial of
Columbus, Ohio, which is dealing more with bank trust departments
than in the past.

Nationwide has developed an “advanced sales group” comprised of
attorneys and certified public accountants, among others, who deal
directly with a bank client’s attorneys and accountants. By
contrast, 10 years ago, almost all of Nationwide’s business with
banks was packaged products – mutual funds and annuities – usually
sold at the retail investments level.

The report also found that banks are more precisely segmenting
their client base. Typically, there is now a mass-market segment,
an emerging wealth (mass-affluent) segment, a high net worth
(wealth management) segment, and an ultra high net worth
(ultra-affluent) segment.

Along with client segmentation has come a ‘democratisation’ of
products and services. The study found that advisory products with
enhanced reporting are now available for those with less than
$100,000 to invest, something that was relatively rare from banks
five years ago.

Five to seven years ago, $100,000 would be a good threshold for a
mutual fund wrap account, while today it’s $25,000 to $50,000.
Banks want to ‘grow the client’ – but keep that individual within
the bank. The study determined that $1 million in investable assets
was most often required for an individual client to be considered a
wealth management candidate at banks. Indeed, among 50 institutions
where minimum client thresholds could be identified, almost half
(23) reported a $1 million minimum.

Minimums were generally lower in the Midwest, higher on the East
and West Coasts. New York’s Bessemer Group (12th place) had a $10
million minimum, the highest of any bank in the study. Wachovia
(8th place) and HSBC North America (25th place) had $5 million
minimum thresholds.

The report found that technology remains a challenge as banks
embrace wealth management. While banks often have a desire to
integrate business units – trust and brokerage, say – historically,
those businesses have operated on separate technology platforms.
Brokerage and trust operations often employ different
financial-planning software, for example. Private banks should
endeavour to get the technology talking to each other, or risk
losing a valuable bird’s eye view of the client’s holdings.

“Technology today enables both trust and retail brokerage to get an
instant picture of a client’s overall assets – those held by the
bank and those outside the institution, like the $100,000 annuity a
client might hold with AIG,” the report said. “This makes it easier
to see the growth in a client’s assets. Those assets may have grown
to such an extent that they now exceed $1 million, for example,
making the customer a bona-fide wealth management client.”

Advances in technology have also helped with regard to
compensation, particularly with referrals. If a broker makes a
referral to wealth management, it is much easier to track and
quantify the results today.

Not only does the broker see ‘on the system’ that the referral
resulted in a sale of trust services, say, but he or she may
receive some form of incentive compensation as a result. In the
past it was often too difficult to do this, but as the report
demonstrates, it is a relatively simple to do so now thanks to
advancements in aggregation technology.

Finally, the report found that many private banks are overlooking a
rich source of new wealth management business in commercial lending
and small business banking.

Small business owners, who already are using the bank for their
credit needs, could also use the bank for estate planning, business
succession planning, sophisticated tax planning, and so forth,
represent a potential gold mine for wealth managers, the report
said.