Wealth Management Revisited

Capital scarcity and the ever-shrinking margins cause bank CEOs to redirect their attention to fee income generating businesses. Wealth Management is one of those businesses, except it has a bad rap as a generally low-contribution business. CEOs often believe that while this is a nice business, there is no way to make it meaningfully profitable.

Wealth Management executives talk much about top line revenue, and little about the often puny bottom line. Yet, there are many companies in our Wealth Management Forum who enjoy contribution margins (pre-tax income) of 35-45% or more.

Let's revisit the business and its prospects:

• Wealth Management is a scale-oriented business. Therefore, starting the business from scratch is rarely a good idea. One notable exception: today's major dislocations create opportunities for lift-outs of full departments from banks. Those can be like acquisitions without the premium, yet you get a strong cadre of professionals and a book of business.
• Customer dislocation. The industry has been jarred by so many bad news that more wealth management clients, who typically take years to cultivate and switch, are more amenable to listening to other providers. This is a double edge sword, especially if you have a strong client base (which you need to protect now more than ever).
• Service differentiation. What a great opportunity to differentiate your service levels and product offerings from the unsound competition. During these tumultuous times, customers are nervous. The large banks cannot call most of their customers to ease their fears and calm them, yet you, the community bank, can and should. Your community will spread the word, and your clients will tell others how they heard from you while other providers didn't call...
• Team selling. An overused and under-executed word that can make a great difference in the success of your wealth management business. Approaching both clients and prospects with a multi-product, multi-person offering is not only more compelling than those who don't, but also allows for better client/prospect read as several people observe the client while one is presenting.
• Target "sick" competitors. Unfortunately, there are many unhealthy financial institutions around, as well as many recently acquired investment banks. Those formidable competitors are on the ropes right now. Targeting their customers as your prime prospects is the order of the day. Tight execution is key here, since this opportunity window will close within 6-12 months.
• Capitalize upon the flight to safety. Customer jitters are the weak bank's bane, and the strong bank's boon. Don't badmouth the competition; just clip a few articles from the paper which discuss at length their troubles, and leave those behind... This is also a great time to give the press stories that will help build your credibility as both a solid company and an expert. I know the press can misquote you, but it can also be a strong ally.
• Exercise discipline in allocating clients. Too many trust departments won't let go of their $100,000 clients. A recent experiment by a successful wealth management executive involved disallowing any accounts under $1 million in the trust department. Profitability rose 32% in the first year and 40% in the second.
• Establish a bright line between the brokers and the trust sales forces. Whatever is your cutoff between these two, enforce it.
• Have a clear value proposition. Too many banks have a muddied value proposition which is often founded on superior service. It's difficult to sell and ever harder to understand. Spend time on formulating and clearly articulating your value proposition and your sales will grow.
• Don't forget the next generation. The children and grandchildren on your trust clients don't want to have the same RMs taking care of them. In fact, they often don't even know their parents' relationship managers, and switch providers as soon as they pass away. Cultivating the younger generations TODAY, preferably using officers of the same age, is essential to success as the wealth transfer boom finally arrives. If you're not there now, it will be too late when your loyal trust customer passes away.
• Proactive sales management. Wealth management is not known for its sales effectiveness, which is both a bane and an opportunity. Establishing a proactive sales expectation among your trust officers including weekly goals, reports and sales meetings, can be the determinant of your profitability today and tomorrow. Insist on getting each week the names of the clients and prospects your BDOs and officers plan to call on, and then receive reports on those calls by end of week. Being proactive and specific is the secret to success. Also, recognizing that some of your trust officers will not shift toward a sales culture as needed, and dealing with the issue swiftly and directly is important.

  Part of the sales management process is teaching your employees new processes. One successful example I recently saw was insisting on role plays with the calling officers. Bringing video cameras to the process is an added bonus. Your staff will hate it, but they will learn so much from the process they will become more successful almost in spite of themselves.

• Financial planning as a customer acquisition tool. Use financial planning to profile clients and develop a list of future opportunities and their timelines. Financial planning is a great way to find out more, if not all, about your prospects.
• Clearly define everything you want to see happen. Specificity is an asset. Be clear as to your expectations regarding frequency, quality and content of all activities.
• Customize marketing approaching to specific segments. Seminars might appeal greatly to retirees, but not so much to busy doctors and lawyers. Consider your target segments and customize your approach to their preferred marketing modes.
• Insist on strong financial management of the business. Part of the issue with the profitability of Wealth Management is the lack of financial discipline. Not enough managers know how much they can spend on compensation in order to achieve a minimum of 40% contribution margin. Many feel the mahogany is essential to success, and that support staff is an entitlement. Having responsible financial managers in the business executive team is an important contributor to profitability.

So, don't give up on your wealth management business. It's a natural addition to your business model, and could become a meaningful contributor if effectively managed.