April 9, 2009

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Cadillac Banking

Private Bankers Offer Top Financial Services

By Marie Mischel

April 9, 2009

It’s a national trend we’ve seen in previous recessions: in an economic crisis, people cut their spending, protect their capital and become very conservative with their investment portfolios, including the wealthy. While Utah’s private bankers understand that impulse, they’re encouraging their clients to buck the trend, albeit cautiously. “A lot of our clients have spent a lifetime growing their net worth to where it is and they come to us to help preserve their capital,” says Matt Krull, CFP, of J.P. Morgan Private Wealth Management. To grow your wealth, fleeing the stock market isn’t the answer, even with the current fluctuations in stock prices, Krull says. “It’s our mandate to help preserve our clients’ capital, and by moving into and out of portfolios aggressively or into and out of the market aggressively tends to detract from our clients’ returns. Part of preserving their capital is preserving the right asset allocation.” Rees Petersen, regional investment manager for Wells Fargo Private Bank, agrees that investing in diverse assets is a key philosophy in his department. “For the last two years, we’ve really been working to make sure all of our clients have diversified exposure in the four asset classes: equities, fixed income, alternative assets and real assets including real estate as well as cash and cash equivalent,” he says. While private bankers recommend investors continue pursuing long-term investment goals, they also realize that some clients are less aggressive than others with their investment philosophy, particularly in the current economy. “Our advice is going to vary by client,” says Michael Poulter, a market leader with U.S. Bank Private Client Reserve. “We’re going to look for whatever the client needs, so our recommendations are going to be very different, depending on the risk tolerance of the client and what their long-term goals and dreams are.” Stick it Out Unless a client’s financial circumstances have changed, Krull, Petersen and Poulter say they recommend that investors follow the plan that they’ve already established. This can be difficult, especially when the market gyrates daily. To deal with this, Petersen suggests clients check their portfolio’s status no more often than once a week. “For some clients, that’s not something they can look at every day,” Petersen says. “It’s not avoidance, it’s just necessary to maintain their emotional well being. We also recommend that our clients avoid the urge to just do something. As humans, we’re wired with this fight or flight, and sometimes when we see something like this we just want to take action. So we advise clients that the current market situation is not something you can fix. The market needs to go through this process. It’s not fun, it’s not enjoyable, but most things of long-term value carry some period of short-term pain or at least require patience. If you have a plan that was laid out rationally and carefully, then that plan, unless your family situation has changed, is probably still good. You just need to have the intestinal fortitude to follow it.” Financial counselors in offices large and small tend to offer similar advice. Unlike a financial counselor, however, the private banking departments of most large Utah banks offer a wealth of services. In addition to investment management, they give clients basic banking services such as checking and savings accounts, coordinate loans, and offer trust and estate services, as well as insurance and brokerage services. “What we’re doing is customized, full balance sheet solutions,” Petersen says. Poulter adds that private bankers can be more flexible than a traditional banker. “We can offer the personal touch that most wealthy people want,” he says. “In a private bank, we rely much more on an individual’s liquidity and ability to service a loan rather than looking to the deal or the project they’re trying to fund. At a private bank we have more alternatives. We can look at the individual and say, ‘Does he have enough cash flow coming in from his business, from other sources, from other investments?’” Rather than steering their clients toward specific products, private bankers focus on meeting needs. “When someone comes in the door and we’re talking with them, we absolutely do not say, ‘This person is perfect for X product,’” Petersen says. “That’s a differentiator between what we do and what you would receive from a financial counselor. In the private banking experience, we’ll spend a lot of time finding out what your needs are, bringing a team to wrap around the client so that there’s a representative from the full balance sheet of the client rather than just the asset side, and then come up with a solution that’s really customized and individual for that person.” Private Banking for You? Zions Bank’s Private Banking department doesn’t offer clients investment advice or trust services as other large financial institutions in Utah does, says Susan Speer, the department’s manager. Instead, clients are referred to the affiliated Contango Capital Advisors for investment advice and the wholly owned subsidiary Western National Trust Company for estate planning. What the private banking department does offer clients is a signature Visa card, a complete roster of deposit services and individualized loans. “I would say the main thing we offer is just really good service,” Speer says. “We do very sophisticated lending, and then we pay a lot of attention to [the clients]. We try to coordinate all their financial needs, but we don’t necessarily provide them all ourselves.” Zions Private Banking has five underwriters who work with a lot of guarantor-reliant loans, Speer says. “We have very high lending authority where we don’t have to deal with the committee system, which sets us apart from every other private bank in Utah because it’s all right here in this building. And we have quick turnaround time because we don’t go through a bunch of out-of-state people that may not know a fancy name here in Utah or don’t totally understand the business that someone in Utah is doing.” Clients must be referred to Zions Private Banking, Speer says, and have a net income of $300,000 a year and a net worth of $2 million. Each bank has its own requirements for private banking clients. At U.S. Bank, the qualifications are a minimum of $1 million in liquid managed assets, $1 million in deposits or a half million in loans; they no longer have an income requirement, Poulter says. At Wells Fargo Private Bank, a client must have $1 million to invest outside a mortgage, while clients at J.P. Morgan’s Private Wealth Management typically have a minimum $2 million in deposits or investment management accounts or a mix of such assets. Some clients have less than that amount, but they have potential to meet $2 million, Krull says. People with high net worth can benefit from becoming private banking clients because they often are confronted by very complex investment, trust or tax issues, Krull says. “Individuals on our team typically have advanced degrees or professional designations that speak to a deeper understanding of those complex needs. That is important because a lot of the strategies that we implement have to work closely with [a client’s] estate plan, their existing techniques, liquidity management, etcetera. It’s significantly more complex than what a typical $250,000 brokerage account looks like.” Private banking teams consist of specialists in fields dictated by a client’s needs, such as a tax specialist or a fiduciary officer if there’s a trust relationship. “We try not to take the place of attorneys out there who do drafting of [trust] documents…but we will make recommendations and suggestions,” Poulter says, a former estate and tax attorney. “Then we will meet with advisors and help the clients develop a plan.” Once a plan is developed, the private bank team can administer the trust. Choose Your Team Wisely Wealthy individuals who decide to engage a private banker should consider who would comprise their private banking team, the depth of resources they can offer and the level of service they can provide, Krull says. “Typically our level of service only makes sense for wealthy individuals. We have roughly 80 relationships per manager. This allows us to offer a higher level of service than the average provider could. While many of Utah’s smaller banks don’t offer private banking, focusing on a high level of service allows the Bank of American Fork to offer private banking-like services to all clients, not just individuals with a high net worth, says Christopher Liechty, vice president of communications at the Bank of American Fork. “Workers in all areas of the bank will go out of their way to help you,” he says, giving the example of a teller in Orem who noticed at 5:15 p.m. that checks from a title company in Nephi hadn’t been properly endorsed and couldn’t be deposited. Because the deposit was time-sensitive, a business development officer from the bank took the checks to Nephi to have them endorsed properly, then ensured that they were deposited first thing the next morning. “We have a lot of examples like that,” Liechty says. “It’s part of our culture. It’s the way we treat our customers, regardless of their asset size or how wealthy they are. If someone has a problem, we try to do our best to take care of it for them.” Within the last six months, Liechty says, his bank’s clients have shown a greater interest in conservative investments such as CDARS, a certificate of deposit product insured up to $5 million by the FDIC. Krull also has seen an increase in his clients’ interest in federal guarantee investment vehicles. “Clients that come to us with cash tend to be a little bit more conservative with their investments,” he says. By contrast, at Zions Private Banking department, there’s been no change in the economic atmosphere, Speer says. Although the loan officers may be looking more carefully at a project’s balance sheet and cash flow, “We’re still doing a lot of lending,” she says. “Our clients are pretty savvy and we have a very good credit culture, especially here in private banking, and we certainly haven’t changed our products.” Utah’s economic climate seems better than the national outlook, Petersen agrees. “I don’t think we’re seeing as much concern that people are seeing in terms of the local economy and how that affects business. I see that particularly for business owners who are banking clients in Utah versus [other states].” While Utah’s private bankers haven’t seen many changes in their products or services yet, that could change. In the future, Poulter says, large financial institutions will offer additional specialized services such as business succession planners for private banking clients who wish to ensure their legacy endures despite the passing of generations and economic cycles.
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