A Colorado community bank has found success in wealth management using a most unusual model.
Colorado Capital Bank, owned by the holding company BankVest Inc., in Castle Rock, operates an investment advisory group that has $100 million of assets under management.
But Colorado Capital has no retail brokerage, no trust department and no proprietary products. The business is noteworthy in that it caters only to wealthy clients — often those with a net worth of between $5 million and $100 million.
"Our practice is really operated like a boutique high-net-worth independent RIA practice," said David Twibell, the bank's president of wealth management.
"It's a higher-margin practice because it's much less transaction-based."
Started four and a half years ago, the wealth management business has higher margins than those at most small banks, Twibell said. He declined to provide numbers, explaining that the bank is in the middle of a follow-on offering.
Most of the unit's assets under management are from high-net-worth individuals and families, while 10% are from nonprofits and some are from a small number of retirement plans. The clients are served by a staff of six that includes a chief investment officer, portfolio manager and a financial adviser.
The advisory approach has so much potential that it's been worth forgoing the transaction revenue that a different kind of business would bring, Twibell said. "Over the short run, I do think we're leaving some money on the table," he said. "Our practice needs more patience, but it is a higher-margin, more valuable one."
The wealth management business is also unusual in how it is regulated. Twibell described it as being very similar to a registered investment adviser, which would normally be overseen by the Securities and Exchange Commission.
But when Colorado Capital created the business, it used a carve-out within the financial regulatory structure that allows it to operate as a division of the bank, he said. That means that it's under the purview of the Federal Deposit Insurance Corp. and Colorado state regulators rather than securities regulators, he said.
"From a regulatory standpoint, it's an odd situation," Twibell said.
That arrangement is rare, but not unheard of, said Kenneth Kehrer, research director at Kehrer-Limra. A big reason certain banks might like it is that it simplifies compliance and spares them from having to real with yet another regulator, he said.
The arrangement has benefited the wealth management business, Twibell said. The fact that it operates under a different regulatory framework allows the unit to associate more closely with the bank, for instance.
Particularly at the outset, when it was building a client base, that enabled it to grow through referrals from the bank, he said. The wealth management business gives advice and has legal authority to initiate transactions, which it has done through a third party, Schwab Institutional, Twibell said.
Colorado Capital is counting entirely on bank referrals and word of mouth to attract additional assets under management, he said. The bank hopes to increase those assets by 25% in 2010, Twibell said. "It's a balancing act trying to provide the right level of touch for clients," he said. "We lose that if we try to grow too quickly."