http://www.charlotte.com/mld/charlotte/business/16100014.htm

SELLING STRATEGY It's like regular banking, turned up: BofA delves deeper into wealth management

by BINYAMIN APPELBAUM, Sun, Nov. 26, 2006, The Charlotte Observer

The very rich may be different from you and me, but the business of managing their money is strikingly similar.

Sure, it's true some bankers have mailed hats to vacationing dowagers, chased World Series tickets for clients and otherwise spoiled the pampered. But such service is uncommon because it cuts into profits.

And though the wealthy do receive more personal attention than the merely middle class, the trend is the same. Companies compete by promising excellent and individual care. They profit by using technology to replace employees, by increasing the number of people they serve and by selling additional products to those customers.

Bank of America Corp. will aim to do all of those things as it expands its private bank through the $3.3 billion acquisition of U.S. Trust, announced last week.

Private banking had its start in the 19th century, managing fortunes amassed by robber barons. Today, with the wealthy prospering like it's the 1920s, banks including Charlotte's giants are expanding operations to compete with smaller firms that specialize in wealth management.

What all of the firms are selling is the promise of great advice, much better than the hot picks available from the neighborhood stock broker.

"What we have is intellectual capital," said Peter Scaturro, head of U.S. Trust, summing up his highly educated employees and the complex investment strategies they design.

It is certainly expensive advice. Clients generally pay a fee that begins at 1 percent of managed assets — no matter the returns. The percentage declines for larger portfolios. Clients also pay fees to the funds where their money is invested.

In part, they are paying for something more complicated than advice on how to make more money. Wealth managers are also in the business of reducing tax bills and preserving wealth for children.

They are paying for access to investments simply unavailable to the general investor, such as stakes in private companies, funds managed by superstars or foreign currency transactions.

And they are paying for someone, always, to answer the phone and answer their questions.

Madelyn Caple, Charlotte-area manager for Wachovia's wealth management unit, said many of her customers are businesspeople who find time to manage their personal affairs — and call Wachovia — at night and on holidays.

"The only thing worse than Thanksgiving is the day after Christmas," Caple said with a laugh.

Wealth management companies emphasize this type of personal service in wooing customers. Wachovia, for example, employs about 75 people in a regional office that serves about 1,000 families. Brown Brothers Harriman & Co., a specialized firm, employs 11 people in its local office to serve about 100 families.

"Over time, we're hoping to develop a level of trust where they feel comfortable discussing any issue," said Charles Izard, a partner in the Brown office. "If we're doing it right, we're going to (their) weddings."

But personal service is expensive, and many companies also have invested heavily in systems that give information to clients through the Internet — basically, fancier versions of seeing all your accounts on your bank's Web site.

And they are pushing to make more money by selling an expanding array of their own products.

Private banks offer a wide range of loans to their clients, such as the rich person's equivalent of a payday loan — an advance on an expected annual bonus. And financial supermarkets such as Bank of America can offer clients a wide range of investment opportunities they themselves create and operate.

Largely because of such sales, Bank of America kept 44 cents in profit from every dollar in revenue generated by its private bank during the first nine months of 2006. By contrast, U.S. Trust kept only 19 cents from every dollar.

Brian Moynihan, head of the Bank of America division that includes wealth management, said the bank could now sell the same profitable products to U.S. Trust customers.

Convincing people to buy multiple products is a basic strategy for Bank of America. But there is a crucial difference when it comes to the private bank. Because customers are already paying for advice, the bank must be careful about advising them to invest in its own products. For example, it does not offer financial inducements to buy products, such as the reduced mortgage closing fees offered by the general bank to people with checking accounts.

And the private bank promises to tell customers if the bank down the street has a better product.

But just like ordinary people, the wealthy may still suspect they're not getting impartial advice. An annual survey conducted by U.S. Trust found only 41 percent of affluent investors consider private banks "very trustworthy."

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Bottom line: It's not enough to be a millionaire. Wachovia requires clients to have a minimum of $2 million in investable assets. Bank of America sets the bar at $3 million. Brown Brothers, $5 million. And the best advice requires more. CTC Consulting, a U.S. Trust subsidiary that helps clients invest in hedge funds and other exotic vehicles, requires minimum investable assets of $250 million.

Or as U.S. Trust head Peter Scaturro puts it, "a quarter of a billion dollars."