SunTrust Banks Inc. has combined two brokerage units and adopted an open-architecture, advice-driven strategy in an effort to generate assets in a unit that needs a jump-start.
The Atlanta banking company said last week it had created SunTrust Investment Services by combining SunTrust Securities, a retail brokerage operation, and Alexander Key Investments, a brokerage unit focused on wealthy customers in high-growth southeastern markets.
John Rhett, the chairman of the new unit, said he expects the unit to increase assets under management by 15% a year for the next five years. The unit manages $30 billion of assets.
"If the wealth transfer from one generation to the next is as big as I think it'll be, 15% growth will be easily achieved," he said.
Analysts said the merger, which took effect June 1, was done to cut costs but that a bigger motivation was to generate brokerage assets through the bank channel.
"The bank has been lackluster in generating brokerage assets in the past few years," said Burton Greenwald, a Philadelphia analyst at BJ Greenwald Associates. "They had to do something."
Mr. Rhett said SunTrust Investment Services plans to adopt Alexander Key's open-architecture, advice-driven sales model and apply it to the bank channel.
"Alexander Key is a solution-driven firm. What is happening, and it is happening everywhere, is that the growth of product-driven sales is slowing dramatically and the advice-driven model is growing," he said. "We want to offer more tools to the people at SunTrust Securities and let them position themselves for the oncoming wave of new assets."
SunTrust has been offering advice-driven solutions since it bought the capital markets business of Atlanta's Robinson-Humphrey Co. in 2001. SunTrust built a separately branded retail brokerage unit, Alexander Key, to compete with national and regional brokerage firms for wealthy clients in SunTrust's footprint who are not customers of the bank. The unit has developed its sales model during the three years since its first office opened in April 2002.
Since then, the unit has generated $3.5 billion of assets under management for customers in Atlanta; Richmond, Va.; Nashville; Jacksonville, Fla.; Orlando; and Washington - the six cities where it has offices. It opened the offices with advisers recruited from Morgan Stanley, Deutsche Bank Alex Brown, Credit Suisse First Boston, and Merrill Lynch & Co.
Mr. Rhett, who ran Alexander Key, said bringing the two firms together creates opportunities to expand both sides of the business. The advice-driven model could enable the former SunTrust Securities to develop assets through the bank channel, he said, and Alexander Key will benefit from access to lending and fiduciary products.
"SunTrust Securities has been in the process of evolving from a traditional bank brokerage model into more of a full-service model," Mr. Rhett said. "This is essential for us to be successful."
Alexander Key will continue to operate under that name in its six markets. "The Alexander Key division will continue to try to get new customers into SunTrust and then we can begin cross-selling" additional bank products to these people, he said.
Mr. Greenwald said the name change is not the typical window dressing. Companies like Bank of America Corp. in Charlotte and National City Corp. in Cleveland have consolidated all their units under one brand, he said, but SunTrust has done more than just try to simplify. "They are changing their brand in order to change their strategy," he said. "They are moving to an advice-driven model to generate assets."
"The next 10 years are the most critical time ever in the history of wealth management," Mr. Rhett said. "There is going to be a staggering amount of wealth that is being transferred. I believe these dollars are going to be captured by only a few financial firms. We are trying to position ourselves correctly to gather as much of that money as possible."
Mr. Rhett said that to succeed SunTrust must aggressively take one, strong, advice-driven platform to both existing and potential customers.
SunTrust has a huge customer base "for our internal sales force to continue to mine," he said, "but there are also a lot of non-SunTrust customers. We are also going to go outside and compete with Goldman Sachs and Morgan Stanley with an open-architecture platform to gather more customers."
