Fulton Financial Corp. has used acquisitions and a decentralized model to expand, but to build its wealth management arm, it is taking the exact opposite approach.
R. Scott Smith Jr., the Lancaster, Pa., banking company's chairman, chief executive officer, and president, said Fulton Financial Advisors NA will "continue to become a more meaningful part of Fulton's total revenue" through organic growth and by selling its services to each of its parent's affiliated banks from a single platform.
"We bought a series of community banks and decided to maintain the brands and their local identities to run a decentralized company," Mr. Smith said in an interview last week. "But to run an effective trust company, we wanted to take a more centralized approach."
Fulton Financial Advisors has an open architecture platform of investment products and a network of 225 advisers spread through 11 banking affiliates in five states.
The unit's assets under management have doubled, to $6 billion, since it opened in 2000 while its parent bank's assets have increased to $14.9 billion from $6.9 billion over that same time period. The unit's acquisition in 2001 of Dearden, Maguire, Weaver & Barrett LLC, a Conshohocken, Pa., wealth manager, added $1 billion.
"This is a good line of business with a good price-to-earnings ratio," Mr. Smith said. "I think we as a bank need to develop more fee income," and wealth management "is a line of business that we know a lot about and we believe that we can effectively grow."
Mr. Smith said Fulton Financial started the wealth management unit because only five of its 11 banks had trust capabilities. It considered going with a decentralized wealth management platform, but "we realized very early that we can't make money with a wealth management business without critical mass," he said.
By starting Fulton Financial Advisors, the company gained trust powers in every state it had banks: Pennsylvania, Maryland, Delaware, Virginia, and New Jersey.
"We knew right away as we looked at our lines of business" that starting a wealth management business "was a good way to ramp up revenue," Mr. Smith said. "There is a lot of potential for us here. We bought banks in really good markets, and there is a lot of potential for us to grow."
Gerard Cassidy, an analyst with Royal Bank of Canada's RBC Capital Markets, said centralizing is more cost-effective and can lead to better products.
"Lending is a local product. For lending, you need local people with local identities to compete against the large Wal-Mart-style banks," he said. "For Fulton to grasp a segment of the banking market, a centralized model would not be very competitive, because they don't have the economies of scale that other banks have."
But providing investment products "is expensive," he said. "So, if you can create some economies of scale by centralizing the function with one brand identity, you could achieve better success than if you had separate identities and separate businesses in each market."
Even with a centralized approach, though, it has been difficult for small regional banks to generate wealth management revenue, Mr. Cassidy said. "Because of the economies of scale, it is hard to compete with large institutions," he said.
Richard D. Weiss, an analyst with Janney Montgomery Scott LLC, said centralizing allows Fulton Financial Advisors to cut costs and to maintain better control. Mr. Weiss said the company became more cautious after taking a $5.5 million first-quarter charge related to the repurchase of delinquent subprime loans originated by its mortgage subsidiary, Resource Bank.
Matthew C. Schultheis, an analyst with Ferris Baker Watts Inc. in Baltimore, said Fulton Financial Advisors can grow because its parent has banks in such affluent markets as Fairfax, Va., and Princeton, N.J. He said the wealth management arm can expand further by going after its parent's small and midsize business customers.
Mr. Smith said: "Each of our affiliated banks have established themselves in these markets and have good relationships in these markets. We have some good opportunities in those markets to make introductions and get referrals so that the Fulton Financial Advisors folks can get in front of affluent individuals."
In May, Fulton Financial hired David B. Hanson as Fulton Financial Advisors' CEO, succeeding Richard J. Ashby Jr., who remained chairman of the unit. Mr. Hanson, who had worked in Orlando for SunTrust Banks Inc. of Atlanta, said in an interview last week the unit will continue to expand its open architecture investment platform.
He said the company is implementing a third-party unified managed account platform that will enable it to attract affluent clients to its wealth group and smaller investors to its brokerage channel.
"We think there are real opportunities for growth over the next three to five years by deploying more Fulton Financial Advisors resources in Fulton Financial's markets that are under-resourced," Mr. Hanson said. He said 175 of the wealth management unit's 225 advisers are in central Pennsylvania, and "roughly 95%" of advisers working with wealthy clients are in central Pennsylvania.
"We believe there are significant opportunities for us to expand along our eastern frontier in New Jersey, Maryland, Virginia, and Delaware," he said.
Mr. Hanson said he would like Fulton Financial Advisors to get big enough that it does not rely on referrals from its parent's affiliated banks. "As we look at the wealth industry, the best firms don't have bank partners," he said. "We aren't there yet, but we think we can be there within a few months. This new process and this new UMA platform are really the only missing pieces."
Some analysts said Fulton Financial may need to make a wealth management acquisition to have the scale that is necessary to grow. Mr. Smith said Fulton Financial will consider deals, though it hasn't made an acquisition since buying Dearden in 2001.
"Acquisitions are always a possibility, but it is very difficult in my mind to make it part of the plan," he said. "You have to be very careful in this line of business, because it's hard to make a deal work and get the people to stick with you. It is just more prudent for us to plan for our future organically and then any acquisitions become icing on the cake."
