Asset Based Lending
Chief Investment Officer
Commercial Loan Automation
BirdsEye Viewmore on wealth management
The more I hear about wealth management, the less I understand what the term really means. Is it a portfolio of businesses? An approach to high net worth customers? A stream of fee income? An umbrella of products and services, or a client relationship process? As you strategize about this business for 2012 and beyond, I suggest answering the basic question "what is wealth management" as a good starting point.
Once you get closure on what wealth management is in your bank, and, equally importantly, what it is not, you might consider the "hot" products and markets below for their fit into your vision and resources.
1. Handling the brokerage quandary. There is a natural and sometimes healthy tension between brokerage and trust services. One is considered more transactional in nature, while the other represents more of an annuity-type business. I find this to be an artificial and unnecessary segregation. Both businesses can be either transactional or a multiple-year income stream. The real question is, how can you sell retail brokerage advice economically? One successful approach involves leveraging the retail resource. It makes sense especially in this environment, as capacity is freed daily with declining branch-based transactions and customer visits. Consumer bankers and branch managers already get licensed to sell specific products such as mortgages, annuities and mutual funds. Why not follow the same approach for brokerage? Mass licensing is expensive and often doesn't pan out, though. Too many people get expensive licenses and do not produce enough income even to cover that cost. One way to ensure that your retail brokers are truly committed to the business is to make licensing conditional on a minimum annual production level. This way the 10% of your bankers who typically sell 90% of the volume will be licensed and knowledgeable, while the remaining sales force will focus on basic retail products.
2. Design credit products to meet market needs. Loan demand is languishing, yet the affluent are still looking at financing and refinancing homes and second homes, as well as loans secured by assets under management. Many banks have exited both markets. Working with your credit department you can develop products that will address this market need while meeting your credit requirements. Timing is good for residential real estate based credit products in most markets where price stability has been reached. Plus the stock market gyrations make many lenders appropriately nervous, so a low LTV and additional guarantees might make the product more palatable to you.
3. Insurance. This product line is traditionally associated with a dedicated distribution channel. Banks have been in and out of the business following their own cycles for decades, buying and selling insurance agencies. There is much to be said both for and against buying insurance agencies, which is a separate topic. But an alternative to this tactic is to hire licensed insurance broker(s) for very specific products that are attractive to high net worth individuals and house them in the wealth management business. These folks are better integrated into the enterprise culture and style, and can generate meaningful profits while creating true value to customers. Think disability insurance, a product that isn't sold effectively in many markets, yet a great companion to key man insurance for small and middle market borrowers as a credit enhancement tool.
4. A dedicated resource to specific market segments. Certain segments, e.g. not-for-profit organizations, can be very attractive to the bank as well as to the wealth management business. Dedicating a resource to administer and develop proposals to the segment and coordinate a bank-wide sales effort can be productive and differentiating.
5. Strategic relationship management is what wealth management should be about, but it often isn't. Focusing on the processes that address clients' needs beyond the immediate issue and builds continuity and a sense of well-being is essential to make your wealth management business unique and effective. Spend time developing and institutionalizing such a process to fully mobilize your human capital.
6. Enterprise misalignment and disagreements are costly. Politics and silos spend precious emotional energy on internal issues instead of customers. Tone from the top can facilitate and demand collaboration across the company to minimize such wasted energy and bring the entire bank to bear for each and every customer.
Fee income has always been highly valued in our industry. It is even more precious today, when capital requirements continue to rise. Make wealth management one of your key fee income producing businesses. It can and should work, with the right leadership, attitude and execution.