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Banking Today

Every time I turn around these days, it seems as if another bank is slapping a new name on trust and investment activities. Currently, “wealth management” is in. But does the label really live up to its promise?

Having reported on several bank initiatives for some of the national magazines, I’ve come to appreciate the complexity in mastering — and delivering — comprehensive wealth management services. Undeniably, there are numerous challenges impeding these efforts — internal culture clashes, organizational integration concerns and “build it or buy it” issues — that can quickly complicate matters.

Moreover, banks have had their agendas occupied with pressing matters ranging from merger digestion (or rather indigestion), credit quality and margin pressures in recent years, making the wealth management issue one of secondary importance to some financial institutions.

But the numbers in favor of wealth management as a priority as well as the urgency to compete becomes even more acute as a host of aggressive nonbanks continue to accelerate trust-related activities.

While statistics vary, one highly-regarded consulting firm says that the number of U.S. households having a net worth of $1 million or more is expected to reach 15 million by 2004. And while bank-managed trust assets grew by 8.7% annually in the 1990s, according to Washington, D.C.-based VIP Forum, market appreciation disguised a disturbing trend. Measured by cash inflows from customers, bank trust assets dwindled by 5% a year, according to the same source.

Experts who cover wealth management activities say there are several root problems for banks. For one thing, they say, banks have relied heavily on inherited wealth to drive their trust operations. But PricewaterhouseCoopers, which released a comprehensive North American wealth management analysis late last year, says an increasing amount of North American wealth involves what they call “first-generation” money — entrepreneurial business owners, corporate executives and two-income families.

Adding to the challenge is the fact that many banks have been slow in coordinating the various departments involved in asset management, such as trust, private banking, brokerage and investments. Consolidation has also presented a problem. While merger deals increased assets under management, pressures to streamline operations and revised corporate policies disrupted long-term relationships between trust officers and clients at some institutions. Trust officers who may have been more accessible in the past were subsequently spread thin as “regional” managers in an effort to trim costs and maximize merger “efficiencies.”

While obstacles abound, several banks are making sincere efforts to tap the wealth management market. Some of the more successful are attempting to eliminate internal turf battles via the creation of wealth management teams, which draw upon appropriate expertise on an as-needed basis for the client. Other forward-thinking banks are realizing the importance of external alliances rather than stubbornly sticking to proprietary solutions.

While these are positive steps, more is needed according to industry experts in the way of employee incentives and training. And while banks enjoy traditionally a strong reputation for client trust, banks must rethink some of the ways that they now do business.

Unfortunately, bank organizations and reporting structures often get in the way of what customers want. Too often, experts say, banks put their own policies and procedures ahead of what’s best for the client, without any rationale other than “it’s always been done that way.”

Finally, while some banks have paid big bucks to attract wealth management professionals from non-bank firms, some banks ultimately stumble by trying to convert those professionals into bankers.

The growing emphasis on integrated wealth management solutions and sophisticated financial advice is a forceful challenge for banks, but also a tremendous opportunity.

However, meaningful change requires more than an emphasis on surface or trivial aspects of the game. Slapping the name “wealth management department” on a trust manager’s or investment manager’s door won’t do the trick if these executives have no interest or incentive to cooperate as teammates. Slick presentation packets, advertising campaigns and redecorated offices won’t make a wealth management department either. To succeed, bank managers must be willing to embrace new business models within the context of knowing what works with existing customers as well as what they need to attract viable prospects.

As one executive says, it isn’t rocket science — it’s just a commitment to follow through on the details that can otherwise trip you up.

MBJ columnist Karen Kahler Holliday is a contributing editor with ABA Banking Journal magazine. Send comments about her column to mbj@msbusiness.com.

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