As the economic recovery sputters forward, banks continue to bleed revenue in such mainstays as commercial lending and, of course, mortgages. So they are increasingly catering to the only customers who have survived the Great Recession relatively unscathed: rich folks.
Customers with more than $1 million in liquid assets (not including the house, or two) can expect some extra coddling these days, as banks are adding services and staff to their wealth management divisions.
The new focus for many banks stems largely from a simple lack of other options - as historic government bailouts wind down and sobered consumers and businesses grow increasingly allergic to new debt. Nearly a fourth of Americans are underwater on their homes, and so won't be needing a mortgage; and starting or expanding a business into the current headwinds takes a brave and well-capitalized soul. Simultaneously, banks have seen their bedrocks of revenue from debit card and overdraft fees eroded by new federal regulations.
By contrast, the 3.4 million people in North America holding more than $1 million in liquid assets actually grew their wealth by 9.1 percent last year, to $11.6 trillion, according to Merrill Lynch's World Wealth Report released last month. The number of high-net-worth individuals in North America has also risen, growing 8.6 percent last year.
Bank of America's Global Wealth and Investment Management division, which serves high net worth individuals through its Merrill Lynch and U.S. Trust business units, saw its first-quarter revenue jump 11 percent, to $4.5 billion.
When it released its wealth report, Merrill Lynch said high-net-worth individuals were expected to continue to shed their real estate investments in 2012 and increase their equity and commodities allocations.
So banks would be foolish not to follow the money, said Joe Hoffmeyer, principal of St. Louis-based Phoenix Financial Services Consulting and a former manager of First Banks' wealth management division. "Every board of directors of every bank in the world wants to focus on wealth management now," he said.
That focus translates to extra staff, including some superstar financial managers recruited by local banks and divisions, along with concierge-type service and expanded "family" financial education programs on strategic planning topics.
Commerce Bank, based in Kansas City, Mo., and one of the largest banks in St. Louis by market share, has grown its Family Office this year to serve 75 families - for customers with more than $25 million in liquid assets.
"We're beefing up our staff and hiring people with more experience," said Ray Stranghoener, president of the St. Louis-based Commerce Trust Co., a division of Commerce Bank. "We think there are a lot of people who want the convenience of consolidating their affairs in one place."
Commerce's trust division has been on a growth spurt for the past decade, with its trust business growing from 6 percent of the bank's profit in 2000 to 17 percent currently. In the past five years, its asset management sales for fees on newly acquired business grew to $8.2 million in 2010 from $5.9 million in 2006.
Sometimes the banking relationship even strays into areas only tangentially related to finance.
"We've seen a lot more families, in addition to core investment expertise, they're more interested in noninvestment topics like family education for the younger generation, family governance and how to make decisions," Stranghoener said. "More people are interested in someone to get them organized."
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