Community banks' wealth management businesses are holding their own as weakness in housing has thrown major banks into turmoil and the declining stock market has shrunk the values of assets in investment accounts throughout the country.
As small and midsize wealth management companies like Wedbush Inc. get into banking, smaller banks are profiting by offering their customers mutual funds, annuities, and other investment products.
"These are not business lines that'll be driven by huge spikes and volatility in overall trading volumes, like you'd find at the larger banks that have brokerage operations tied into them," said Matthew Kelley, an analyst at Sterne, Agee & Leach. "They were never chasing the day trader."
Mr. Kelly said that community banks are typically helping their customers with retirement planning and the like, so the investment products they offer are conservative, well diversified, and less vulnerable to market fluctuation.
Many smaller banks have established wealth management services units to keep their customers happy more than to drive growth.
MidSouth Bank in Lafayette, La., for example, offers retirement planning, college funding plans, annuities, tax-free bonds, and mutual funds, among other products, through the New York broker-dealer Royal Alliance Associates Inc. The bank receives a percentage of the revenue that the broker-dealer generates.
Rusty Cloutier, the chief executive of MidSouth Bank, a unit of MidSouth Bancorp Inc., said MidSouth Bank generates revenue of about $800,000 a month overall and $15,000 a month from it wealth management business.
"We haven't seen a big drop-off" in recent months, Mr. Cloutier said. "These people are not out there playing the market or trying to judge it. They're more long-term investors. … The people who get hit are the ones in New York City."
MidSouth is not alone. Kalamazoo County State Bank in Schoolcraft, Mich., offers services such as retirement and estate planning through the broker-dealer Investment Centers of America Inc. of Bismarck, N.D.
Kalamazoo County State's chief executive, Jim MacPhee, said his bank has a revenue-sharing agreement where the broker-dealer pays for space in the bank's branches and the bank gets around a quarter of the business the broker-dealer makes from the bank's customers. The cut is the same no matter what happens to the business volume.
The business has "been on a nice steady incline over the years," Mr. MacPhee said. "We're seeing revenue produced. It's a nice source of revenue for a small bank and not something you can live on month to month and depend on."
The revenue the wealth management business brings in helps the bank retain customers, Mr. MacPhee said. (He would not give revenue figures, citing competitive reasons.)
Boston Private Financial Holdings Inc. provides private banking, wealth advisory services, and investment management services through its 15 subsidiaries on the East Coast and West Coast, including Boston Private Bank and Trust Co. The wealth advisory service lineup includes fee-based financial planning, investment counsel, tax strategies, asset allocation, and estate planning.
"We view" wealth advisory "as our fastest-growing business," said J.H. Cromarty, the chief executive of Boston Private's wealth advisory group. "We're pleased to say we enjoy high retention rates across the board."
In general, small-bank wealth management units are not trying to come up with innovative products or ambitious strategies.
Bill Reid, the president of ICBA Financial Services, a unit of the Independent Community Bankers of America, said: "Community banks are sticking to their knitting. They're still doing the basic blocking and tackling. They haven't been touched."
