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Wealth Management - Is It Right for You?

By: Bill Poquette

Just over 20 years ago, in 1988, a trio of financial industry veterans — Fred Eller, Kevin Eichner and Ronald Henges — launched Enterpise Bank in the St. Louis suburb of Clayton, Mo. Their vision was a full-service financial company that would serve the lifetime financial needs of privately held businesses and their owners.

Today, the bank’s holding company, Enterprise Financial Services Corp, describes itself as a “high-growth financial services holding company which addresses the needs of privately held businesses, their owner families and other success-minded individuals through two principal lines of business: commercial banking and wealth management.”

Last year, fee income from the wealth management line of business totaled $15 million for the $2.2-billion-asset company, which operates primarily in the St. Louis and Kansas City markets, with a loan production office in Phoenix.

An Enterprise alumnus, Jack Sutherland, has a vision that would add wealth management to the services of Equity Bank, where he serves as regional president in Overland Park, Kan. Based in Andover, Kan., near Wichita, Equity Bank has assets of $450 million and considers itself a business bank concentrating on small business owners and their families. It also offers a full complement of retail services through its four branches in Wichita, two in western Kansas and four in the Kansas City metropolitan area.

There’s no question the wealth market is attractive. According to a recent Nielsen Co. study, despite the economic downturn the population of affluent Americans — defined as those with household income and income-producing assets in excess of $100,000 — has grown to 19 percent of all U.S. households. These New Mass Affluent, as Nielsen labels them, number 22 million households earning more than $100,000 — a 23 percent increase from a decade ago after adjusting for inflation.

“There are more higher earning Americans than ever, signaling a growing opportunity for many business sectors to capitalize on reaching this market,” said Jane Crossan, vice president of the financial services group at Claritas, Nielsen’s marketing information provider. “This group controls $22 trillion in assets.”

Sutherland, who was Kansas region president for Enterprise Bank, senses the potential and knows that Equity Bank should offer wealth management “at some point.” The key reason to be in wealth management, he points out, is the huge amount of financial assets subject to generational transfer. That process is projected to play out over a period of 15–20 years as baby boomers inherit from their parents and then pass it on to their children.

“In our case, we’re a business bank focused on small to mid-size businesses and the families that own them,” Sutherland says. “Their major liquidity event will occur one of these days when they sell the company or transfer it to the next generation. We’d like to still be their key financial partner and if you don’t have wealth management it’s pretty hard to do that.”

Equity Bank’s assets of $450 million is about the minimum size to be capable of getting into wealth management, Sutherland suggests. “You’ve got a broad enough base of clients at that point that a reasonable percentage of them need the service,” he says. “And they’re probably getting it somewhere else if they need it.”

The problem, as Sutherland sees it, is this: “Typically it takes five years for that kind of business to break even. In this kind of environment you can’t start a business and lose money for five years.”

Equity Bank would probably start with a basic trust department, perhaps by purchasing a small trust company or a bank that had a small trust department — something that is already profitable. “Estate planning and creating trusts is very important and something people should be doing long before they retire,” Sutherland says. “That’s kind of an early stage intervention with them in wealth management.” Then he’d add financial planning and an investment or money management component, which might be handled through an affiliation rather than having it in-house.

“And what I’d like to see added as a fourth component would be a stronger emphasis on retirement planning,” he says. That would include not only the financial aspects of retirement planning, but also what a person does
in retirement.

“The whole retirement planning thing has intrigued me for 10 or 15 years,” Sutherland says. “It’s such a significant step in a person’s life. What do you do with your time? What’s important to you? Most of us have been so busy earning a living we haven’t had time to reflect on what is important to us.”

While the current economic environment may have affected revenues adversely in the wealth management business, which traditionally prices its services on a percentage of assets managed, the current wave of buyouts and early retirements may have generated some opportunities, Sutherland suggests.

“The need is as prevalent as ever,” he says, “and fewer people seem to be available to do it.” And that’s ironic, in his view. “There are a lot of young, smart people who want to get into the wealth management business. Because there aren’t that many positions available they may still be in accounting or financial analysis but their ultimate objectives are to be certified financial planners.”

Technology is available to enhance the process, he notes, including software that can produce many different scenarios, for example. But it takes trained staff to interpret the data so it’s still very much a people business. “The technology is just a tool,” he says. “In the wealth management arena, if advisers don’t have good chemistry with clients, the clients aren’t going to share their deepest, darkest financial details.”

Sutherland concedes a lot of bankers are looking at the same things he is. But with strong capital, Equity Bank may have a leg up. “We’re primed to be opportunistic if the right deal comes along,” he says.

Bill Poquette is editor-in-chief of BankNews.

Copyright © September 2009 BankNews Publications