July 14, 2006

Competition Heats Up in Wealth Management
by Raksha Varma, Silicon Valley/San Jose Business Journal

Bank of America , Wells Fargo Bank , Bank of the West and Borel Private Bank & Trust Co. are among the financial institutions seeing more opportunity for wealth management and trust-related products and services.

Last month, London-based HSBC Group opened its first wealth and tax advisory office in East Palo Alto .

The local trend mirrors the rise in trust business nationwide. Banks held almost a trillion dollars -- $990.4 billion, to be exact -- in personal trust assets in 2005, almost double the $504.4 billion in assets a decade ago, according to research firm SNL Financial .

"Baby boomers' kids are starting to graduate from college, and their parents are in their 80s and 90s...so there's a lot of transfer going on," says Walt Drew, a financial consultant based in San Francisco for Charlotte, N.C.-based Bank of America.

"Second and third families complicate the transfer. Locally, there are a lot of people possessing a lot of money. They're looking to pass that on."

Bank of America's private bank caters to clients possessing assets greater than $3 million. The bank launched a separate group in April 2005 to specifically target families controlling more than $50 million in assets.

A trust is a relationship or agreement to transfer assets to the care of someone else -- a trustee that manages the assets for beneficiaries. Trusts are created for a multitude of reasons, including passing on a family estate to children or protecting finances from creditors.

As a greater proportion of the population ages, the demand for trust and wealth management businesses goes up -- creating a prime opportunity for large banks as well as community banks, experts say.

"There's no question that you're going to see the demand for trusts increase as this group continues to mature," says Adam Dener, a financial consultant at New York-based Capco.

Members of this so-called "sandwich generation" -- who have to juggle the financial responsibilities of sending kids off to college as well as taking care of aging parents -- need help managing a host of different money management issues, so there are multiple opportunities for banks to jump in. For example, San Francisco-based Wells Fargo's private client services' trust business offers a range of options -- from legacy trusts to pass assets to multiple generations to the care of elderly clients.

Offering an assortment of options is a strategy that's paying off for the bank. According to Wells' 2005 annual report, it posted a 40 percent increase in revenue year over year from wealth planning and insurance. "The trust business manages close to $80 billion," says Jay Welker, head of Wells' private client services group.

To collect fees, most banks, such as San Mateo-based Borel Private Bank & Trust Co., charge a percentage on the assets under management. The bank had $325 million in trust assets 10 years ago. It manages more than double that amount today.

"The average in the valley is about 1 to 1.5 percent," says Nancy Johnson, a senior trust and investment officer at Borel, a subsidiary of Boston Private Financial Holdings, Inc.

There are 10 trust officers spread among the bank's four Silicon Valley branches.

"There are a huge number of wealthy people in the valley. It makes perfect sense that boomers, people in their 50s and 60s, are starting to entertain these businesses more. They're starting to visit attorneys, to do real estate planning. As boomers reach their later years, they're seeking out trust businesses more."

But some experts, such as Mr. Dener, say banks might see mixed results in the future.

"It's a fact that the business is getting bigger," he says. "But it doesn't mean banks are going to be the most successful breed to respond to the demand."

Banks compete against other banks, large financial companies such as Smith Barney , insurance agents, thrifts, financial counselors and other fiduciaries for trust businesses such as New York-based U.S. Trust Co. , the wealth management division of San Francisco-based Charles Schwab Corp. Locally, top bankers also foresee more competition in the industry.

"There are dedicated trust companies out there, Northern Trust and others, that are specialists in the field," says Bill Zillman, division executive of the wealth management group at San Francisco-based Bank of the West. "So, there's a fair degree of competition out there. Banks are also competing against banks in their backyard... It's important to separate your bank from the herd."

RAKSHA VARMA covers banking, retail and small business. Reach her at (408) 299-1829.