Lots of bank wealth management units have posted increases in assets under management over the past year, but often they've simply ridden the market upward to recover losses from the crash of 2008.
The wealth management group at $61 billion-asset Bank of the West of San Francisco, while it has benefited from the market rebound, owes much of its growth to new assets.
Assets under management at the business stand at about $9.2 billion, up from $7.1 billion 12 months ago. And market appreciation accounts for just half of that increase, according to Richard Byrd, head of the wealth management group at the bank, which is a unit of BNP Paribas SA's BancWest Corp. of Honolulu.
Byrd attributes the new-asset gain to a robust referral system the bank began building two years ago. Its success has come faster than anticipated, said Byrd, who joined the bank in May 2008 to run its newly consolidated wealth management group.
"We got a lot more referrals from clients than we would have thought," Byrd said.
Part of that seems to be explained by Bank of the West's enhanced compensation for referrals, particularly those made to its trust business. Early last year, Bank of the West sweetened referral payouts to its brokers and increased the incentive for bankers to reach group referral goals. Interestingly, the new clients being referred to the fiduciary business these days have an average of 79% more in investable assets than do the unit's pre-existing clients, said Byrd.
Clients seemed to be attracted by the unit's good, consistent investment performance and its focus on planning and holistic advice rather than products.
"We are doing a much better job of focusing more and incenting people better," Byrd said. "And there's so much dislocation with our major competitors right now that people are more apt to listen to broader, better advice and are open to a smaller kind of boutique setup."
The bank's focus is on cross-selling to its existing customers. Its success at reaching investors with $1 million to $10 million of investable assets has been "a little more dramatic" than the results reaching other levels of clients, Byrd said.
To get to where it is, Bank of the West has taken bold steps, including the consolidation two years ago of its insurance, wealth and investment units.
That consolidation was coupled with a holistic, financial planning-based approach to wealth management. But Byrd's business has taken pains to go beyond simply using such buzz words. It has implemented follow-up standards and contact standards for serving clients, and is focused on delivery against its investment policy statements and having broad discussions with clients. That sort of follow-through on holistic service is "rarer than people believe," Byrd said. "I think a lot of firms would tell you they have a similar strategy," he added. "But execution against that is a much wider band than anybody understands."
Kenneth Kehrer, research director of Kehrer-Limra, suggested there may be some truth to that. There is a tendency among those running brokerage and wealth management businesses to look for a "secret sauce" to make the businesses succeed, but more attention should be paid to the nuts and bolts that can make programs work, he said.
"In the end, one of the greatest tools brokerage managers or wealth management executives have is activity management," he said. "They can lay out what they expect advisers to do and then check to see that they are doing it."
The focus on day-to-day goals tends to be fragile, Kehrer said. Programs can start cutting corners for any number of reasons, from a management change to a stock market plunge to a regulatory examination, he said.
Bank of the West's referral initiative has required adjustments along the way. Last year, for instance, bankers were doing a better job of making referrals to trust than were the brokers. Early this year, more training was provided to the brokerage corps, and that has resulted in better "teamwork," according to Byrd.
In the first third of 2010, Bank of the West has booked as much fee-based investment business as it did in all of 2009. Bank of the West uses a team approach when brokers refer clients to their fiduciary management colleagues.
In most cases, the broker remains the quarterback in the client relationship. Among the reasons that makes sense is the fact that high-net-worth clients usually keep a brokerage account. Another reason is that many of Bank of the West's brokers have a "deep understanding of retirement and education planning, which is specifically helpful to fiduciary clients," Byrd said.