U.S. Bank’s aggressive bid to boost its wealth management business kicks into high gear this month with the opening of the first offices of Ascent Private Capital Management, the bank’s new ultra-high-net-worth division targeting clients with a net worth of $25 million or more, in Denver and Minneapolis.
“Wealth management is a growth business we’re investing in,” says Mark Jordahl, president of the U.S. Bank Wealth Management Group. “It’s a very fragmented business where no one has dominant market share. We have a lot of head room and room for growth in markets we are already in.”
With offices in 25 states, U.S. Bank is also taking steps to bolster its Private Client Reserve division, which has over $36 billion in assets under management and caters to clients with $1 million or more in investable assets. The bank hired industry veteran Heidi Steiger as Atlantic region president to grow the division’s east coast business. To date Steiger has opened new offices in Florida and New York City and plans to use those markets as hubs for further expansion in surrounding markets.
Launching Ascent is seen as a particularly ambitious move by the Minneapolis-based bank’s parent company U.S. Bancorp., the nation’s fifth-largest with over $320 billion in assets. For starters, U.S. Bank brought in Michael Cole, one of the industry’s top executives, to run the new division.
While head of Wells Fargo’s ultra-high-net-worth Family Wealth Group and Wealth Planning Center for ten years, Cole pioneered developing non-investment services such as working with wealthy families on planning, internal family dynamics, meetings, governance and education. At Ascent, that approach, which Cole describes as “managing the impact of wealth” will not only be taken “quite a bit further,” but also showcased front and center as services Ascent will offer to differentiate itself from the competition.
In addition to offering ultra-high-net-worth clients a new reporting and investment platform, Ascent’s “wealth impact” services for wealthy families will focus on areas like strategic planning for a liquidity event, succession planning, customized education courses, family governance and risk management and leadership and communication within the family. What’s more, Ascent’s new offices will be specially designed to include special rooms for family meetings and also have learning and communication resources.
Illiquid Assets Are Okay
Interestingly, target clients won’t have to have $25 million in investable assets, as is often the case in the ultra-high-net-worth market. Instead, Ascent is actively pursuing families with substantial illiquid assets, usually in the form of a family business that generates at least $25 million in annual revenue.
“These are families who will be transitioning from a business enterprise to a financial enterprise,” Cole says. “By offering them a unique set of services, we’ll be able to enhance, grow and protect the relationship.”
Cole sees a “fantastic opportunity” for this market, cited studies showing that approximately 35,000 family businesses fit Ascent’s client criteria, with nearly 60 percent of those families having majority shareholders over age 55. He also pointed to a study from the book Preparing Heirs, by Roy Williams and Vic Preisser, showing a 70 per cent failure rate transitioning family wealth from the founding to the third generation, primarily because of a lack of communication and trust and inadequate preparation of succeeding generations to handle their inherited wealth.
Because these illiquid clients won’t be able to pay Ascent the traditional percentage of assets under management, U.S. Bank will charge its clients a fee based on the requirements of each “customized engagement,” Cole says.
Therein lies the rub, say industry observers. While demand for these kinds of “soft side” services is rising, the ability of wealth management firms to get clients to pay for them remains unproven.
To be sure, Ascent is on the right track, said Charlotte Beyer, founder and chief executive of the Institute for Private Investors, whose average member has assets of around $50 million. “Seeing beyond just the money is critical today,” Beyer says. “Wealth management is about far more than the money, and smart firms are offering expertise on human capital, not just financial capital. This is a clear trend I am seeing in many different firms, ranging from banks to multi-family offices.”
Demand For ‘Soft’ Services High; But Profits Unproven
Non-financial “soft side” services are usually included as part of a wealth manager’s percentage of assets under management fee, says industry consultant Jamie McLaughlin. “Demand is high for these non-financial deliverables, but so far no one has proven that people will pay for them,” McLaughlin says. “The question is, can this be profitable? Can Ascent take this concept and recover their fixed costs with reasonable margins?”
Cole believes ultra-high-net-worth clients will see the value of the “wealth impact” services and pay for them, and he notes that after clients sell their private holdings, they will in fact have plenty of money to invest.
Initially, Ascent can afford to be selective, Cole said. There are about 700 current Private Client Reserve clients who potentially qualify as Ascent customers, and he is looking to move around 60 of them over in the next year and a half, placing 10 clients in six offices. Following this month’s opening of offices in Denver and Minneapolis, Ascent is eyeing offices in Seattle and San Francisco next spring, Cole said, followed by two more offices in Cincinnati and southern California in the summer of 2012.
Industry analyst Wallace Blankenbaker, senior director for the VIP Forum, says it “makes a ton of sense” for U.S. Bank to target the ultra-high-net-worth segment. “Banks like U.S. Bank have a huge base of commercial customers, and our surveys of businesses indicate that over 50 percent will look to sell within the next decade. In my view, this is essentially a retention strategy for their best commercial customers.”
As for Ascent’s strategy of highlighting its “wealth impact” services for a fee, Blankenbaker believes finding a “differentiator” in a “super-competitive” ultra-high-net-worth market where private banks, boutiques, brokerages and multi-family offices are all competing for market share is critical.
“I think what Ascent is doing is developing its hook, which is, ‘We can help you manage through the family related issues better than anyone else,’” Blankenbaker says. “The way they can be profitable is by keeping acquisition costs low. If they can tap into their commercial base, then they can cut out some of the high costs of client acquisition.”