Monthly fees won't fly, so banks piling into crowded family office space

Retail accounts of many banks not money-spinners; Wells Fargo latest to join field

Nov 2, 2011 @ 3:49 pm

By Liz Skinner

The stand-alone family office being launched by Wells Fargo & Co. will join an increasingly competitive field as more banks look toward wealth management to replace transaction-based fees.

The combination of assets from Wells Fargo Family Wealth and its Lowry Hill Investment Advisors Inc. will start the new Abbot Downing advisory unit off with about $27.5 billion in client assets and about 575 clients.

Abbot Downing, which is the name of the firm that built the signature Wells Fargo stagecoaches, will focus on gaining customers with $50 million or more in investible assets. The family office also aims to provide a full array of financial services, including mergers-and-acquisitions help, insurance and commercial banking.

Wells Fargo estimates that there are about 10,000 such households in the US. James Steiner will lead the firm, which officially launches in April.

Once up and running, Abbot Downing will face some stiff competition. Large U.S. banks need new revenue sources to help offset the loss of other income, particularly the cap recently placed on “swipe fees,” the amount merchants pay on debit card transactions, and overdraft charge limits.

“Banks now have to focus on relationship banking and high net-worth individuals because they are the most profitable customers,” said Bob Hunt, senior research director, retail, at The Tower Group Inc. “They have to find ways to get their fee income back.”

About 80% of retail accounts are not profitable, he said.

“The relationships combining investing and banking are strong relationships that banks want to grow,” Mr. Hunt said.

Bank of America Corp. chief executive Brian Moynihan has said his bank plans to focus on its most profitable customers. That plan can only be strengthened by BofA's announcement yesterday that it will abandon its controversial plan to charge most customers a $5 monthly fee for debit cards.

Currently, there are about 400 multifamily office practices in the U.S., many of the largest operated by banks. Abbot Downing will become the fourth-largest, behind HSBC Private Wealth Solutions, Bessemer Trust Co. NA and UBS Wealth Management, according to a Bloomberg list.

“Banks are repositioning their ultrahigh-net-worth offering, recognizing they can best serve the top end of the market with a specialized unit,” said Marv Pollack, managing director for marketing and strategy for the Family Office Exchange LLC.

Overall, the market for family offices is growing because there's an increase in acquisition activity, so businesses are selling and leaving owners “with significant liquidity, which is a trigger for setting up a family office,” Mr. Pollack said.

“There's increased recognition among high-net-worth families that they need integrated wealth management, they can't just go to a wealth manager to keep track of all their estate planning, tax, succession, and training the next generation on money issues,” Mr. Pollack said. “That's increasing the demand for the integrated wealth service.”

Mr. Steiner said Abbot Downing is well positioned to help a family business owner who is ready to sell by providing access to private equity or other buyers. It also can help a family turn their illiquid assets into liquid assets to be reinvested. Families that experience this “sudden wealth” need expertise beyond traditional wealth planning and cash flow, he said.

“We can provide these clients with more service and be highly beneficial to these clients,” Mr. Steiner said in an interview. “Wells is a reputable brand, which is important to high-net-worth families.”

In fact, the firm still has clients created from relationships begun in the 1930s in Philadelphia and Minneapolis, he said. The firm expects to garner new assets from existing clients and new clients from “liquidity events.”


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