Reduce liability for losses on commercial accounts by adhering to four requirements.
State-of-the-Art Wealth Management: The Enterprise Bank & Trust Story
"To guide our clients to a lifetime of financial success” is how Enterprise Bank & Trust, based in the St. Louis suburb of Clayton, Mo., describes its mission. With total assets of $1.3 billion as of June 30, and major operations in the St. Louis and Kansas City metropolitan areas, Enterprise became a national wholesale player with its acquisition of Millennium Brokerage Group. Headquartered in Nashville, Millennium is a leading life insurance advisory and brokerage organization with operations in 49 states.
The following is an interview with Kevin C. Eichner, president and CEO of Enterprise Financial Services Corp., the bank’s parent, about a wealth management strategy that is generating rapidly growing revenues and high performance numbers. The interview was conducted by Bill Poquette, editor of BankNews.
BN: How did the term “wealth management” become such a catchall?
Eichner: I think it became a catchall when people really thought that wealth management meant money management. And they defined money narrowly, meaning investable funds. And one’s wealth, particularly that of a private business owner, is not always constituted of investable assets. Then there was an extraordinary increase in the number of mutual funds over the past 15 to 20 years and that just seemed to echo the point that wealth management is just money. So we define it much more broadly. We want to intervene with our clients — particularly business owners, who have a lot of needs — on a much broader basis.
You’ve got to do retirement planning, estate planning and tax planning, both for the business and the individual and all their entities. They’re often not utilizing the opportunities that exist on a tax-advantaged basis with respect to benefits. There’s succession planning and then there is money management, their investable assets. We’ve been successful because once we get with folks they realize they’ve got all those things flying around out there being handled by a bunch of different people, not all on the same page.
BN: How does Enterprise Trust fit in the overall wealth management strategy? Is it a subsidiary?
Eichner: Enterpise Trust is actually within the bank, but we’re in the process of applying for a national charter, an OTS charter, with trust only powers. Once we have that, we will move the trust company out of the bank into that entity, which will be owned 100 percent by our holding company.
BN: What’s the advantage of having it as a separate entity?
Eichner: One advantage is that it’s such a significant part of our business that it deserves to have its own governance structure, its own organizational model. The second thing is that with Millenium we’re a national player, and we want to have the right to move into all states. You get federal preemption rights with a national charter.
BN: What are your trust assets and how did you get there?
Eichner: They are $1.54 billion. That’s in seven years from scratch. We started this in 1998, so we’ve had one of the fastest-growing trust companies in America over the past seven years. One reason is we have much more comprehensive offerings. We are in the wealth management business, not just the money management business. Second, our open architecture approach to money management has resonated with clients. We have no proprietary funds. We use a “manager of managers” concept. We’ve had strong performance and people understand that it’s a long-term game of singles and doubles. We’re not trying to hit the ball out of the park or following the latest fad.
The third thing is that we have hired exceptional people. I would add one other thing. We’re probably one of the very few places in America that has successfully integrated wealth management and banking. Our bankers have adopted our core mission, which is to guide clients to a lifetime of financial success. They changed their behavior, which has presented our trust company with a great unpaid sales force.
BN: You have a high fee income ratio — 25 percent.
Eichner: Yeah, but it was only 15 percent less than six months ago. Millenium and the continued growth of the trust company really account for that increase. I couldn’t tell you what the industry average is. I can tell you that in the high-performance peer group, 25-30 is where most of them are. But most of them got there through a retail base. We, of course, didn’t have a retail base. We didn’t get the service charge and fee income that a lot of our brothers and sisters in the industry did. But we also didn’t have their overhead structure. That was always the tradeoff. One of our strategic imperatives was to get that fee income ratio up materially. We don’t intend to stop at 25 percent. We have a very aggressive goal. And we want to do that organically and through acquisition.
BN: Is wealth management how you generate deposit and loan growth?
Eichner: No. The deposit growth really is a different play. We obviously target deposit-rich kinds of clients and we use our treasury management and other products and services to enter that market. That has worked extremely well for us. Our mix is favorable at about 18 percent noninterest-bearing deposits, currently. On the loan side there is almost no connection between the two. Some of our wealth management clients have become bank clients and borrowed money from us. But that’s almost an incidental thing. It’s more likely that somebody who is borrowing from us or depositing with us will become a wealth management client.
BN: You’ve got a pretty good net interest margin — 4.11 percent in the second quarter. How do you do that?
Eichner: We presented at the Keefe Bruyette & Woods conference last month and I think there were 40 companies or more there. I don’t think more than one or two of us had actually managed to widen our margins in the first half of 2006. The answer to that is very disciplined pricing, which is harder and harder to do because we are now back to an environment where deposits are worth something. The deposit wars have heated up. The second thing is that we believe we offer a superior experience for our clients and we believe we ought to get paid for that. The third thing is we’re not in the business of predicting interest rates and taking a lot of interest rate risk. We’re in the business of building and protecting our core client base and in the process protecting the margins that we generate from it.
BN: You have a number of advisory boards. Is their primary role business development?
Eichner: Their role, as you indicated, is referring business to us, including their own business, and they are extraordinarily helpful in that. Second, in what I’ve regarded as just an important role, they tell us who NOT to do business with. When you have a marketing-oriented company, it’s important to have somebody pushing back sometimes on individuals or companies or even sectors where they have a lot of insights. The third role they play is as shareholders of this company. We like to keep them involved in the overall direction and strategy of the business and we like their insights.
They are mostly focused on their own units, but this month we’ll bring them all together in two separate sessions, one in St. Louis and one in Kansas City. We will go through the entire strategic plan of the company, not just their units. Then we will have breakout sessions. They’ll give us their insights and they will interact with each other and then we’ll have a nice social event. They learn things from this experience, getting to be on the inside of a high-growth, high-performing company. And they get to network. They do a lot of business with each other, which is great.
BN: How many are on these advisory boards?
Eichner: We have something like 130, if you add them all up. Each unit – a bank or business unit – has one. For example, we have a wealth management advisory board. That board will go away and will become a formal legal board once we have this new charter. We have a medical advisory board, a group of 25 or 30 doctors in St. Louis. I have something called the president’s council, which is for folks who don’t want to make a monthly commitment or who used to do that but are now probably retired, typically living out of town, but they want to stay engaged with our company. Linda Hanson, president of the Kansas City Region, has an Overland Park board, and Robert Owens, president of the Plaza location in Kansas City, has a Plaza board. Following our acquisition of NorthStar Bancshares Inc. we’ll obviously have a North Kansas City board, a Lee’s Summit board, and so on. Typically there are 10-12 individuals on a board.
BN: Your KBW presentation talks about leveraging wealth management profitability. Can you explain that?
Eichner: Well, it’s a high operating leverage business. You have a lot of fixed costs. Once you get to certain volumes, as your revenue increases say 20-25 percent, your profitability can increase at substantially higher rates. Last year I think we had a 42 percent increase in revenue but a 63 percent increase in profitability. This year it’s off the chart.
For 2006, our expectation is that wealth management revenue will grow between 112-118 percent. Our three-year compounded annual growth rate prior to this year was 32 percent. Also, our efficiency ratio last year was 64 percent; we’re going to be somewhere between 56 and 58 percent this year. Our three-year net income compounded annual growth rate is 31 percent. We’re projecting somewhere between 35 and 40 percent this year.
BN: You’re posting good numbers.
Eichner: This strategy, which we’ve been at hard now for four years, is really getting a lot of traction. I think it’s the right strategy for the right market at the right time. Our stock has tripled in the last four years. Our nonperforming loans through the first half of this year are down to 8 basis points. And our chargeoffs were 1 basis point. We kept our reserve at 1.30 percent. But it won’t stay there, we know that.
We’ve posted 20-plus percent earnings per share growth rates 13 out of the last 16 quarters. That’s healthy.
BN: What advice do you have for community banks that might want to emulate your model?
Eichner: This is going to sound extremely self serving. Unless they’re willing to invest the millions of dollars that we invested to get into these businesses, they ought to call us about our wholesale services and we’ll show them how to get into the business on a private label basis, using our backroom and our service capabilities. If a community bank wants to be in the wealth management business, is willing to make some investment, and really get its top talent behind this, then we will be happy to visit with them.
© Copyright BankNews, September 2006