Banking on Wealth Management

A Run for Their Money

Scharton thinks banks have improved in offering flexibility and innovation over the last ten years. “Historically, bank trust departments had a proprietary investment model. They used their own investment solutions, doing their own research, and buying and selling securities based on their own recommendations,” he says. “Since that time, we’ve moved to an open architecture approach,” meaning that banks are hiring outside investment managers and adding hedge funds, commodities, real estate, and private equity to their list of possible investments for clients.

Banks will also have to offer pricing that’s competitive with other types of money management, something they’re working hard to do. At Associated Bank, for instance, clients typically pay 1 percent of assets under management, a price that Gomez says is competitive with mutual funds.

Banks will also need to compete with other money managers, including firms that do nothing but manage money for wealthy clients. “We think we have more depth, experience, and sophistication than local banks,” says Ben Marks, senior vice president of investments and a private wealth advisor at UBS Financial Services in Wayzata. “UBS has more $10 million relationships worldwide than any other financial firm, and along with that comes experience and expertise.” Some clients, he says, may feel more comfortable doing business with a company that does nothing but manage wealth, and has been doing so for a long time.

Marks notes that UBS also offers on-site estate lawyers, accountants, and insurance specialists. The company has a AA+ credit rating, which may give them a lower cost of funds than institutions whose credit is not rated as highly.

That lower cost of funds, Marks says, can translate into better lending terms. It can also lead to better terms for variable forward sale contracts, a financial instrument that helps clients who are heavily invested in one company’s stock to diversify while enjoying deferred tax consequences. “We may be able to offer a higher percentage of the dollars upfront because our cost of funds during the duration of the contract may be less than that of some of our competitors,” Marks says.

In the end, Gomez says, competition between banks and other money managers is likely to push the whole industry toward greater excellence. “We have some great competition out there,” he says. “The only way we’re going to succeed is by getting very close to our customer, by challenging the way they see and look at their financial needs, and by offering them exceptional solutions to those needs. It’s a simple formula and it’s one that we are going to get really good at.”