SAN DIEGO - Trust departments had better retool for a new investment-management environment or be gnawed at by feisty competitors.
That was the advice of two consultants and many of the bankers who addressed more than 225 executives attending a Bank Marketing Association conference here last week.
Brokerages, mutual funds, personal lawyers, and even small boutiques have changed the rules of the game and whittied away at a traditional stronghold for banks, according to Rodger F. Smith and John DeMarco.
The trust and estate business as you know it has been transformed," declared Mr. Smith, a partner in Greenwich Associates, Greenwich, Conn.
Invigorated Market in Reach
But banks can vie for a bigger slice of the market if they adopt aggressive marketing, service, and product strategies, the consultants said. If they are up to the challenge, banks will be greeted by an invigorated marketplace, said Mr. DeMarco, a senior vice president at PSI, Tampa, Fla.
Mutual funds were a significant player in shifting ground rules, Mr. Smith said. The funds convinced customers that they need the ability to track the value of their investments daily. And they offered a wide range of products with innovative features, such as the ability to move money easily and more frequently from one investment to another.
"Mutual funds are eating your lunch," Mr. Smith told his audience.
No More a Sleepy Enclave
This new competition has shattered the "serenity" of traditional trust departments, he added.
Bank trust departments have long prided themselves for rendering "genteel service" to well-heeled customers who were primarily interested in conserving assets, Mr. Smith said. But the new marketplace requires a more aggressive approach.
To succeed, banks must develop sales skills, contact customers directly, and learn how to better communicate with them - all with an eye toward sustaining long-term relationships, he said.
Though the media spotlight has recently focused on mutual funds, assets in investment-management services are also growing at a bliptering pace, Mr. DeMarco said.
Investment Management Rise
PSI statistics show that 25.6% of affluent households use investment-management services, and have average investment portfolios of $423,000, up from just $204,000 in 1990, he said.
To expand their investment-management businesses, banks should first target existing customers, Mr. DeMarco said. In a recent PSI study, only 22% of those surveyed said they had been approached by their banks about making additional investments, he said. Yet of those who were approached, 56% did invest more money.
"Our surveys find that cross-selling opportunities are woefully neglected," he said. "If your people are telling you they have all the available investments of a customer, they're wrong."
For now, most banks are just shifting money from the left to right pocket by reacting to internal referrals. "Right now you're not competing with the Merrill Lynches and Fidelitys," he said.
As existing customers begin to reach maximum investment levels, banks must reach out to new customers to be competitive, he said.
Beyond Performance
One basic requirement today is to have a wide, fully developed line of products, Mr. Smith said. They need not be top performers, but must rank at least in the second quartile by performance.
If performance were the only, standard for choosing mutual funds, billions and billions of dollars wouldn't remain invested in funds whose returns place them in the bottom half of performance rankings, Mr. DeMarco added.
After a customer purchases a fund, "consumer inertia" sets in, Mr. DeMarco said. Then the importance of service grows.
In targeting markets, one juicy segment is the "mass wealth" being accumulated through 401(k) plans. The new popularity of these plans will eventually catapult many humble investors to millionaire's retirement.
As investors pass $300,000 in retirement wealth, the use of investment management takes off, said Mr. DeMarco. Shifting the wealth into trust products could be a smooth process if banks zero in on it, Mr. DeMarco said. "Personal trust and investment management are complementary, not competing, services."
During the 1980s, as life expectancy grew, people delayed the purchase of trust services, Mr. DeMarco said. But wealth has accumulated so rapidly in recent years that many customers have begun diverting some assets to trusts. Besides, he added, you can only delay for so long.
