The rich and confused: spooked by the economy's twists and turns, an emerging mass market of newly affluent customers is desperately seeking wealth management services. Savvy bank marketers are responding. (Cover Story).

First, there was the meltdown in the technology sector. Next, an across-the-board slide in the stock market Now, consumers are panicked and uncertain as to where to invest. What reads like a recipe for disaster may actually turn out to be a boon for the financial services industry. Shaken retail investors today are looking for reassurance. And, an emerging "mass affluent" market has new needs to be satisfied.

"If we look at the marketplace, the biggest opportunity is in wealth management for the newly affluent mass market," says Mike Cardiff, president and CEO of Fincentric in Vancouver, Canada, which in 1999 became the first software company to announce an enterprise solution for wealth management. "And by nature they're bringing in new demands on the institution."

Retail investors today want to be involved in managing their own portfolios as well as measuring the performance of their professional investment managers. The more assets a client has, the more functionality they want in their products and services.

"You've got to provide the affluent client with superior consultative advice and solutions," says Dan Arnold, president and chief operating officer of the Charlotte, N.C.-based UVEST Investment Services. "You have to sit down with the client and understand their objectives and needs with respect to their lifetime goals, then put together strategies to meet those needs."

Filling the position of trusted adviser is especially important now, when cash accounts are flush with money that's been diverted from a volatile stock market.

"As the economy improves and people start to invest again, banks need to hold onto those assets or they'll have the same problem they had in the late '80s when they lost them to brokers and others," warns Gardiff.

If fact, according to Meridien Research analyst Stephen Ross, these new market conditions and customer dynamics may make it impossible for banks to survive without a wealth management strategy. Advanced technologies have combined with altered market conditions to raise competition another notch.

"Wealth management has always been around; it's just been targeted to the high end of the market," claims Ross, analyst and author of the reports, "Wealth Management-Broker Productivity Tools," and "Wealth Management: Getting Downright Personal." "Technologies being introduced today are becoming more robust and allowing institutions, advisers and brokers to target the retail market--the mass affluent."

Give them what they want

What customers want is help in achieving their lifetime goals. To gain market share, Ross maintains that banks need to provide a higher level of customized, personalized and appropriate services to help these clients do that. There are a number of methods a financial service institution can undertake in that direction based on their core competencies and their target audience. Some, Ross says, axe fairly obvious, but "not necessarily that easy."

1. Acquire new products that would help round out the firm's competencies.

2. Attempt a merger and acquisition strategy, thereby purchasing additional expertise to enhance value for your customers.

3. Target new channels with existing offerings.

The third approach, he says, is the quickest way to market. There are many independents providing a high level of service. With the right technologies, a larger institution can operate through those independent channels to target their existing customers.

"Clearly the institution is going to need the technology to do this," explains Ross. "Extending those capabilities to independent channels is a quick and fairly inexpensive way of reaching new customer segments and new revenues."

Key factors to remember about the dynamics of the technology needed to service this audience:

* Wealth management is designed for the "masses," versus private banking, which is very personalized and expensive to deliver.

* The unit cost of service must be kept down, which is where technology enters the picture.

"You need to take advantage of technology and the Internet to allow people to develop their own plans, to be able to do that online and do it quickly, but not to the same level of sophistication that you would do in a private client situation," suggests Cardiff.

Some of the technologies Ross recommends in his "Broker Productivity Tools" report are:

* Automated financial planning/advice tools that consider the customer's financial position, lifetime goals and risk tolerance in real time.

* Portfolio management tools that include performance tracking and reporting.

* Investment execution tools that support the distribution of multiple products offered by multiple financial institutions and that are equipped to execute online, real-time trades, as well as track execution progress.

* Consolidation and aggregation tools that allow true consolidation of account statement-quality records.

* Analytical tools that support event-based notification and real-time alerts for regular, proactive communication.

* A customer contact center that is viewed as a strategic sales and service center, and is staffed by professionals.

Many third-party firms offer banks a turnkey operation or modular solutions that include the above listed items. SET Investments Co. is a global provider of asset management and investment technology solutions, such as separately managed account solutions and mutual fund wrap accounts. Not only does this line of products help the bank transition to a more advisory, fee-based type provider, but it enables banks to focus on acting as a distributor and not as a manufacturer.

"The mass affluent are demanding the best of the best, and they understand diversification so you can't stay with proprietary investment vehicles, you've got to have choice," explains Brandon Sharrett, senior vice president of the community and regional bank market for the Oaks, Pa.-based SET Investments Co. "From an operations standpoint, we do that for the banks. We're dealing with all the money managers, we're handing all the trades, we're doing all the statements. So we're not just marketing managers or funds, it's a turnkey solution from a processing, investment and from a marketing and distribution standpoint."

The goal at Raymond James Financial is to give a community bank the same menu of products that a customer would find at, say, a Citibank or a Chase. The partnership should provide a bank with all the tools to keep an affluent client from seeking more sophisticated services elsewhere. They are also big proponents of knowing the customer and assigning them relationship managers.

"We know we can offer the bank alternative investments, such as hedge funds, commodities funds, trust services, private banking services and wealth management services," says Terry Kor, vice president and director of wealth management services at Raymond James Financial in Tampa, Fla. "But along with that we try to help them identify and cater to the higher net worth clients to gain a larger share of wallet and retain them through multigenerations."

Bank of America Investment Services

Larger financial institutions have already begun implementing these types of tools, either before they begin to manage wealth, or as a necessary step in changing their existing business model.

Bank of America Investment Services, Charlotte, N.C., for example, is moving from a traditional transaction- and commission-based model to a relationship- and fee-based model. The goal of this retail brokerage affiliate of Bank of America was to have each one of its more than 750 financial advisers become the one that clients would call first. After a pilot test in early 2000 confirmed that a consistent, enterprisewide asset allocation tool would help accomplish that goal, they selected a solution provider, netDecide, and rolled out the applications in three phases.

By the summer of 2002, Bank of America Investment Services noted several benefits: Advisers had increased efficiency and productivity, devising 40 plans on average versus 10 prior to implementation, and small surveys revealed that client account size is larger on average. The bank has also received good adoption and positive feedback from advisers.

Changes for Rainier Pacific Bank

For six years, Rainier Pacific Bank, Tacoma, Wash., has focused on building relationships and segmenting customers to gain a larger share of wallet. They knew that to hold on to their mass affluent customers, they had to understand who they were and what they wanted.

"We know from research that they're very savvy and they're not very loyal," says Carol Thomas, project manager for the community bank with 11 branches and a $5.8 billion deposit market. "It's a challenge to keep up with them."

The bank knew that service and delivery were the only ways to distinguish themselves from the competition. When they started to add new channels, like Internet and call centers, they realized the back-end core processing system was too antiquated to allow customer usage analytics. So they're phasing out the old system and phasing in Fincentric Corp.'s i-Wealthview Wealth Management system.

"We were looking for a core banking system and customer relationship management," explains Thomas, "We found that Fincentric was...forward looking enough to really have a customer centric approach versus product focus."

The customer-focused strategy was already a part of the bank's culture. The new technologies allow workers to gain more target information, like channel usage and customer preferences. They can analyze the customer's portfolio across the enterprise and offer relevant products. Even after the initial implementation of phase one, the improvements were obvious.

"We're really seeing the full view of the customer for the first time before we start interaction with them," says Thomas. "Our people are very energized by it, and see this as a tool to make their processes more efficient."

Wealth management strategies that work

While bathed in the glow of the PC, it's important to remember that banking is still a contact business. Sophisticated technology may enable marketers to dig up customer history quicker than an archeologist with a backhoe, but can it take them to lunch? Dining regularly with clients is just one small example of "Wealth Management Marketing Strategies That Really Work," a presentation developed for the 2002 ABA Marketing Conference in Miami. It was presented by Anthony Gallea and Jennifer Hartmann of Salomon Smith Barney, New York, along with Edward Deverell of American Guaranty & Trust, Wilmington, Del.

"Technology can help, but it's only in talking to people that you actually make the sale," explains Gallea, senior vice president and senior investment consultant in Pittsford, N.Y "Going to lunch every week with a legal or accounting professional, that's personal contact that you really need to maximize."

It's the perfect time to be reaching out, too, says Edward Deverell, because people are open to ideas they might not have considered when the market was booming.

"I find that not only do people of moderate wealth want to listen now, but the really affluent people are also listening more to advice," explains Deverell, who is senior vice president, sales, marketing and legal at American Guaranty & Trust Co. "I think they know the ideas that got them to this point are no longer as effective."

The following are some strategies that financial institutions can be put in place now to deliver top-notch wealth management service.

1. Establish a Sales Culture

First and foremost, wealth management only works when there is a positive sales culture in place. If you view wealth management as the flip side of lending, you are wrong. People are not asking the bank for money, the bank is approaching them. Most bank staff are uncomfortable persuading customers to put their money into investments.

"Banks tend to be risk averse," claims Gallea.

To establish the right cultural climate, you need to choose a strong sales leader. Then, hire the best people and compensate them, because certainly your competitors will.

2. Simplify Sales and Reporting Systems

Sales processes should be simple and repeatable, something that everybody uses. By mastering a repeatable process, sales people become more efficient, and profits increase.

For example, creating a document for a trust client is time consuming and specific only to that client. A more cost effective approach might be to focus on quarterly retirement seminars, where clients are invited and asked to bring a friend. Easily replicated and processed retirement plans like IRAs and 401(k)s could be emphasized.

"Those tend to be repeatable sales, where you're doing the same kind of work over and over," explains Gallea. "You can become very efficient and it should open up your profits."

Sales reporting systems should be simplified as well. They often try to accomplish too many things, whether it's compensation or tracking assets. Gallea suggests a basic reporting system composed of assets, revenue and net profit.

"With a simpler reporting system, you also tend to make the compensation schedule simpler for your sales people," he adds.

3. Focus on Profit and Loss

A clear picture of the profits in the wealth management areas allows the bank to focus on the cost drivers. For example, a good commercial client may be offered underpriced products in the wealth management area as an extension of the relationship. When the loan is paid off, their cover of profitability is gone.

"Over time you can put a lot of unprofitable relationships in the wealth management area," warns Gallea. "It becomes a problem because you're not making any money."

4. Maintain An Active Marketing Process

It's more effective to reduce the costs of the marketing strategy and extend it over a long period of time, than spend it on the occasional big shot. Choose ideas that are simple and inexpensive--and that can be replicated by all bank staff.

A clear picture of the profits in the wealth management areas slows the bank to focus on the cost drivers.

Too often, says Gallea, banking organizations are looking for referral business but neglect to develop an ongoing, active plan--like holding seminars, making regular phone calls, and (as mentioned above), making it the business of everyone in the bank to take someone to lunch once a week.

"Everybody's responsible for marketing in a contact business," says Gallea, "Then it becomes a culture, not something assigned to one or two people."

What also works, according to Deverell, are campaigns and material that target ideas the salespeople really know they can sell.

"We try to develop very simplistic, very straightforward materials and messages that appeal to the customer and the sales person," explains Deverell. "Ultimately the sales person is going to be in front of the client, and they have to deliver the message with enthusiasm and confidence to make a sale."

Deverell says that while banks can compete very well with wire houses, marketing people may not be getting that message out. They need to increase both their knowledge of the technical aspects of the products, and of the sales approach, to convey the products to the client.

Wealth management opportunities

The following two scenarios highlight the kind of opportunities available now for banks working in wealth management services. It may just be as simple as getting the marketing materials together and communicating these possibilities to the sales force.

1. Concentrated Equity Position

Not everyone lost wealth in the dot-com demise. In fact, claims Deverell, many of the baby boomers worked for blue chip companies that still have strong balance sheets. They are starting to retire now with very healthy portions of company stock. But we all know what can happen to a single stock position, and that's an excellent reason to open up a dialogue with the client.

"A person with a concentrated equity position can use equity collars in a judicious use of puts and calls to protect that position to give themselves time to migrate it out on a tax sensitive basis to a more diversified portfolio," suggests Deverell. "It's really very easy to do."

2. Enhanced Equity Income Portfolio

In this situation, a client needs more income than their portfolio can generate. Since the current market may not be conducive for buying bonds for income, Deverell suggests writing call options on the blue chip stocks in the portfolio. This allows for both income and appreciation potential.

"Let's take a look at blue chip stocks, see what we can do on the option side and identify all the risks and the opportunities at the same time to the client," says Deverell. "I think a fair number of bankers who really understood this, would do this."

Above all, cautions Deverell, the organization must keep the client's needs in mind. He refers to the triangle, with client on top, sales on one side and marketing on the other.

"If they do a better job listening than focusing on a particular product, they'll do fine," he adds.

For More Information

For the latest trends in the sales and marketing of trust and wealth management services, attend the ABA Trust, Wealth Management and Marketing Conference, Feb. 26-28, 2003, at the Tampa Marriott Waterside Hotel, Tampa, Fla.

For information go to aba.com and click on "Conferences/Schools." To register, telephone (800) BANKERS.

RELATED ARTICLE: The Mass Market in Wealth Management

The retail market, defined as households with under $1 million (U.S. dollars) in discretionary assets, consists of almost $8 million households. These households are broken down as follows.

* Mass Affluent

$500,000 to $1 million: 3.2 million households

* Primary Retail

$100,000 to $500,000: 12.7 million households

* Mass Retail

less than $100,000: 41.6 million households

Source: Meridien Research, 2002

The Upper Two-Thirds of the Market

* Assets of $100,000 to $5 million

* Technologically savvy

* Financially sophisticated

* Eighty percent have personal computer and Internet access

* Most track own portfolio online

* Have relationships with 2.5 financial institutions

* Own 16 financial products

* Value excellent advice, service and support

Source: Fincentric Corp.

Janet Bigham Bernstel specializes in writing about marketing and financial services industry issues. She is works in Jupiter, Fla.