First American Bank in Chicago is taking family-office and wealth management services once reserved for the ultra-wealthy to investors with $1 million to $3 million of assets in an effort to develop wallet share.
"This is the evolution of our organization," said Alan Teraji, a senior executive vice president at First American. "Historically, we've focused on asset allocation and diversification. Everything had a management focus. We know, to compete, we have to take advice and offer it to different customers."
Mr. Teraji said that, in order for smaller banks like $2 billion-asset First American to succeed in the increasingly competitive world of wealth management, they must be willing to pursue a different set of customers. Large banks and brokerage firms are focused on the ultra-wealthy, he said, but a large demographic remains available to a smaller company that can deliver a wider array of services.
Other small financial services companies have taken a similar view. First Western Investment Management, a Fort Collins, Colo., company, for example, bought three companies - an insurance group, a trust company, and a registered investment adviser - last January in order to develop a private bank in the Mountain West. First Western said it is focused down-market, on households with $1 million of assets and on business owners.
"The $1 million to $3 million customer is not on the radar screen for these big organizations," Mr. Teraji said. "These are customers that have a need and are looking for a solution. My goal is to offer my clients a private, family-office environment that historically has only been offered to families with hundreds of millions of dollars."
Analysts said, though, that small banks would have difficulty following this model because it is very costly to offer family-office services to the mass market.
"Every couple of years, a bank, typically a smaller one, thinks they have found the Holy Grail by taking these services down-market," said Kevin Daniels, an analyst in Boston. "The truth is, it is very expensive to service the wealthy and it is even more costly to service the ultra-wealthy."
Mr. Teraji said partnerships with third-party firms can give smaller banks the chance to succeed with this strategy.
"From our standpoint, we feel we can offer more personal services and a lot more face-to-face communication with these customers," he said. "There are things we can offer to them as part of our overall service package that I am not sure larger banks have time to do."
First American, which has $1 billion of assets under management, plans to outsource nonproprietary products and services in order to enhance its service without busting its budget, Mr. Teraji said.
"I think that organizations our size don't have the wherewithal to build the research and expertise to manage money in all asset categories; that is why our customers are looking to us," he said. "I think the market is pushing us to help investors invest in a lot of different opportunities. You have to offer a lot of products and services to survive."
The bank announced a strategic agreement last week with GlobalBridge Inc. in Minneapolis to offer its separately managed accounts. GlobalBridge's Open Custody managed account platform lets First American retain custody and control of its client assets under management in a separately managed account.
Kelly Thomas Coughlin, GlobalBridge's chairman and chief executive officer, said that smaller banks, and specifically First American, are not limited to smaller customers. First American, with GlobalBridge, went up against a large asset manager for a client with almost $10 million of assets and won it, he said.
"I don't think First American is limited to customers with less than $3 million in assets," he said. "These guys are fully equipped for any type of business. We are not conceding the $5 million to $15 million clients to other players."
Mr. Coughlin said GlobalBridge has partnerships with seven banks and is in talks with 50 to 60 others. He said he expects to announce six agreements by Oct. 31.
GlobalBridge announced in March that it had agreed to offer its products to a network of trust companies that are correspondents of Northern Trust Co. Northern Trust is offering GlobalBridge's managed account platform to 140 bank trust departments that use its Trust/Rite accounting system.
Analysts said more small and midsize banks are using third-party firms to add to the products and services they can offer wealthy clients. EnvestnetPMC Inc., a New York managed account provider, has developed $6.5 billion of assets under management in fee-based products since opening in 1999. It has relationships with 12 banking companies, including U.S. Bancorp, Bank of America Corp., and J.P. Morgan Chase & Co.
FundQuest Inc. has relationships with 25 banking companies, including Bank of America, Comerica Inc., and Huntington Bancshares Inc.
Mr. Teraji said that beyond offering products First American wants to make advanced services available to help customers with insurance, long-term-care issues, information on how to care for aging parents, and helping children apply to colleges.
"We want to help clients with all the issues they deal with on an ongoing basis, not just their financial goal," Mr. Teraji said. "It goes beyond helping them from a financial standpoint. We want to help them find more time."
