In this new what-have-you-done-for-my-portfolio-lately atmosphere, private banks had better be paying close attention to their clients' expectations. "When people are unhappy with performance, they are more inclined to move or even take the call" from a competing broker, says Jack Nickels, managing director of Northern Trust's Weston office. "We're getting our fair share of clients who are not satisfied with the company they've been with."
'Open architecture'
Not surprisingly, private banks are retooling ineffective investment strategies and touting those that have achieved better-than-average returns.
Along a short stretch of Royal Palm Way in Palm Beach known as Bankers Row, where dozens of financial institutions compete for money management business, there's a new buzzword making the rounds: Open architecture. It has nothing to do with wall-less buildings and everything to do with meeting investment clients' expectations.
In the wake of the market meltdown, investors are looking for a wider array of options. Many of the big financial institutions have been criticized for aggressively pushing their own proprietary investment vehicles, such as mutual funds and portfolio managers, limiting the potential for higher-yielding returns.
In an open architecture approach, a portfolio manager selects from the vast universe of funds and managers -- not just from those in-house.
Lydian Private Bank, which opened on Bankers Row earlier this year, is hoping that this strategy appeals to south Florida's wealthy. To date, the office has taken $100 million in assets under advisement. Using the open-architecture strategy, the upstart bank -- a subsidiary of Palm Beach Gardens-based Lydian Trust Co. -- hopes to grab market share from big established banks, says James B. Meany, president of the Florida office. "The big banks say they're going to open architecture, but they're not sending all the money to outside managers," Meany says.
By contrast, Lydian uses primarily outside, independent money managers to handle its clients' assets. In the past 18 months, Rockville, Md.-based Lydian Wealth Management, also a subsidiary of Lydian Trust Co., grew by $1 billion in assets, Meany says. Wealthy investors, he says, have become "much more sophisticated. People insist on looking behind the curtains now."
Unconvinced
Not everyone is as enamored with the pure open-architecture approach touted by firms like Lydian. Richard Ditizio, a managing director of Citigroup Private Bank's Southeast region, notes that Citigroup's sheer size enables it to offer clients a broad range of choices that it can control better than outside options. "We have the depth to be tactical in many areas," he says. "We've been an open-architecture bank for years."
At Northern Trust, Nickels dismisses the open-architecture method outright as a passing fad. "Personally, I'm not convinced that open-architecture is producing better results," he says. "In a five-minute pitch it sounds appealing." But Nickels, who says his clients are getting phone calls from brokers pushing open architecture, thinks Northern Trust's 114-year history and track record is just as compelling. "We're able to provide a long-term approach to these short-term concerns and enough diversification," he says. "It's worked well."
Regardless, it's clear the market turmoil has taken a toll on the portfolios of the wealthy. In 1999 there were 7.1 million American families with a net worth, excluding a primary home, of $1 million or more, says Scott Slater, director of Chicago-based Spectrem Group. Last year, the number fell to 5.5 million.
The number of families with a net worth of $500,000 or more has seen an even bigger percentage drop. Their numbers have fallen from 13.3 million in 2000 to 9.1 million last year, Slater says. Interestingly, the number of wealthier families -- those with a net worth of $5 million or more -- has remained steady from 2001 to 2002. Slater speculates that's because the wealthiest investors are more apt to use the expertise of portfolio managers who employ a range of hedging techniques to protect investors against market drops.
Still growing
Meanwhile, in Florida, private bankers report that despite the drop in the market, there's still growth, as entrepreneurs sell businesses and wealthy individuals relocate to the state, especially to well-to-do enclaves of south Florida.
In Miami, Teresa Weintraub, president and CEO of Fiduciary Trust International of the South, says her firm has hired several additional portfolio managers and administrative staff this year to handle new business. The Miami office has 18 employees and about $3 billion under management. Each portfolio manager oversees about 60 clients. "We do have accounts coming from other institutions," Weintraub says. Plus, "we're still seeing wealth being created and new money coming into the market."
Farther up the coast in Palm Beach, Citigroup's Ditizio says his firm has been growing as well. He wouldn't release growth figures for Florida, but the private bank's net income grew 23% companywide last year. The bank has hired about 250 employees, bringing its workforce to 1,100. Florida has been one of Citigroup's fastest-growing markets. "I see continued growth," Ditizio says.
Charity Takes Priority
The big declines in stock portfolios aren't curbing wealthy Floridians' interest in philanthropy. In fact, the state's richest residents appear eager to up their donations, say private bankers who cater to the wealthy. "One of the biggest trends we've seen is a huge interest in charitable giving," says Anne Alexander, director of
Wachovia's wealth management business in Florida. "People are much more focused on philanthropy."
To meet the demand, Wachovia has doubled the size of its charitable advising group in Florida to six professionals. Wachovia wealth strategists help individuals and families focus on what they want their legacy to be and then map out an investment strategy.
Private Banking To Go
It makes sense that private banks concentrate where the money is. In Florida, that means wealthy enclaves of Palm Beach and Naples get the lion's share of private banking offices.
What about the super wealthy who happen to live in the far reaches of the state? Fret not. Private bankers like Pat Cooper, president and CEO of Deutsche Bank Florida N.A., make it a point to travel to their clients.
Cooper, who's based in Palm Beach, often drives to Jacksonville to meet clients. He keeps abreast of local Jacksonville politics and serves on the Jacksonville Symphony board.
Actually, wealthy clients eager to keep their financial affairs private like dealing with out-of-town investment professionals, Cooper says.
Following the Money
Just as the wealthy flock to south Florida, private banks follow in hot pursuit. Last year, Atlantic Trust Private Wealth Management, a unit of London-based Amvescap, opened a Palm Beach office.
Atlantic Trust tapped an experienced Florida banker to head up the office. Courtlandt B. Ault had been in Atlantic Trust's Atlanta office since 2001. He had previously worked at Bessemer Trust, where he led the marketing and business development efforts of its Palm Beach office. He later opened Bessemer offices in Naples and Atlanta.