Wachovia wealth unit missed earnings-growth goal in ’06

SAN FRANCISCO — Wachovia Wealth Management missed the mark set by its parent company last year as earnings growth was dampened by investments and growth pains in that division.
MAY 07, 2007
By  Bloomberg
SAN FRANCISCO — Wachovia Wealth Management missed the mark set by its parent company last year as earnings growth was dampened by investments and growth pains in that division. “Wealth Management posted earnings growth of 8% in 2006,” wrote Ken Thompson, chairman and chief executive of Wachovia Corp. in Charlotte, N.C., in the company’s annual report, which was sent to shareholders last month. “That was short of goal” for the year. Mr. Thompson declined to say what the company’s goal for Wachovia Wealth Management was, and the company didn’t provide it, but the unit’s earnings rose 24% in 2005 to $248 million, and were up 28% in 2004. The fee growth from trust and investment management income climbed only about 1% to $410 million last year, from $405 million at the end of 2005, according to the annual report. That was a big drop-off in growth from the prior year, as 2005 fee growth jumped 10%, from $364 million. Yet Wachovia Wealth Management of Winston-Salem, N.C., finished 2006 on a “high note,” and its earnings grew by more than 10% in the first quarter of 2007 from a year earlier, according to Bob Newell, president of Wachovia Trust Co., which is the investment arm of Wachovia Wealth Management. Advantage, Wachovia’s new open-architecture platform, can be blamed for at least part of the hiccup for Wachovia Wealth Management in reaching its goal, according to company spokeswoman Sandy Deem. The platform’s rollout took longer than anticipated, she added. Advantage offers a choice of 60 separate-account managers and 100 mutual fund managers in addition to private equity, real estate investment trusts and other asset classes — a radical change from the mostly proprietary management platform of its legacy investment management business. Reduced commission revenue from the property-casualty business and squeezed interest margins also dampened results for the wealth management division, Ms. Deem said. But Advantage platform’s slow start is to be expected if history is any guide, according to Bill Crager, president of Envestnet Asset Management Inc. of Chicago. “Our experience is not so dissimilar with [introducing] our new [unified managed account] platform,” he said. “Some advisers get it and love it right away, but it is a long sales cycle.” Yet the change by Wachovia is certain to bear fruit, said Steve Winks, principal with SrConsultant .com of Richmond, Va. “Within a year or two, [Stanhope Kelly, president of Wachovia Wealth Management] will blow away his competition,” Mr. Winks said. “But now he’s going through that period when things are not aligned.” Indeed, Advantage, which was launched last June, is beating expectations, according to Mr. Newell. The Advantage platform has a 65% acceptance rate from existing clients and new prospects alike, he said. “I think it’s clearly [going] according to plan,” Mr. Newell said. “The bright spot is that we’re bringing in new assets,” because of people consolidating accounts away from other platforms. “That [consolidation effect] was not intended,” Mr. Newell added. “We did not think it would help us to immediately gain market share.” Wachovia Trust has 25,000 existing clients with a total of 62,000 accounts and $66 billion in assets under management. Wachovia has presented the new platform to about 66% of its existing clients. But a more prolonged launch still is possible if the new technology isn’t up to the task of handling large volumes of assets, according to an industry executive who asked not to be identified. Charlotte-based Bank of America Corp. may face this issue, because it still depends on manual processes and, for instance, lacks standardization between mutual funds and separate accounts, the source added. Profits at Bank of America’s global wealth and investment management division rose modestly to $2.4 billion last year, from $2.32 billion in 2005. The cause of these relatively lackluster results can be found in efforts to ramp up the business both in terms of new hires and better, beefier technology, according to Jon Goldstein, spokesman for the Bank of America division, which is based in Boston. “We’ve made a significant investment as a business over the past year, building out our client-facing personnel on investment teams and ultrahigh-net-worth teams,” he said. “We’re [also] making big, big investments to have the strongest infrastructure.”

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