Wealth Management Money  to Earn You've accumulated large assets, so now's the time to make it pay off by using private banking services By Laura Williams-Tracy Learn more: Check out these tips for cutting your taxes

Years of unrestrained bull market conditions during the 1990s meant good times for everyone, including banks. There were lots of new stock offerings, companies created and sold, stock options exercised and an overall rush to invest.

“It was easy to make money in the ’90s. Anybody could make money in the ’90s,” says Sue Cole, the president and CEO of U.S. Trust Co. of North Carolina in Greensboro and this year’s NCCBI chair.

Trust departments, long the sleepy corners of bank offices where estate planning happened methodically, came alive. Banks saw how a high touch approach to serving high net-worth individuals, or “hinwins” as banking jargon goes, could attract new customers.

At many banks, trust departments evolved into wealth management departments where customers wanting a holistic approach to managing their growing wealth could coordinate decisions about accounts, credit, tax planning, insurance purchases, investing and financial and estate planning.

When the bubble burst, “some people had trouble sleeping at night,” says Cole. Those who made money so easily found it much more difficult. And more than ever they wanted help holding on to their wealth.

“In many cases the recent market has created opportunities for us,” says Brick Brown, regional managing director for Wachovia Wealth Management in the Triad, Triangle and Eastern North Carolina. “When people are concerned about their well-being they seek a higher level of counsel.”

The result has been a keen interest among banks to attract and retain those customers with complicated financial pictures.

RBC Centura, created in 2001 when Rocky Mount-based Centura Bank merged with Royal Bank of Canada, will open its first private banking departments nationally in 2004 with offices planned in its major markets, including Raleigh and Charlotte. “Our customers are asking for that whole relationship,” says Jennifer D. Terry, vice president of RBC Centura private banking.

The growth in services is big news for banking across the state, which is known for its financial services offerings. Charlotte is the second largest banking center in the country behind New York City and hosts the headquarters of Bank of America, the nation’s second largest bank, and Wachovia, the sixth largest bank.

First Citizens Bank, headquartered in Raleigh and one of the largest family-controlled banks in the country, has had its private client group for three years and offers a coordinated approach to the bank’s full array of services, says Allen Smith, First Citizen’s executive vice president and manager of wealth management services.

“The ’90s fueled that opportunity with such an increase in the number of affluent and high net worth individuals,” says Smith. “There’s no question the market correction has increased client interest in wealth preservation.”

Wealth management is the normal evolution of the financial services industry, says a recent study by Meridien Research of Newton, Mass., an analytical research services organization to the financial industry. Wealth management allows financial institutions to provide a higher level of customized, personalized services, which is key for attracting and retaining customers.

But if you are looking for a coordinated approach to managing not just your finances, but also your risks and your retirement, what should you look for in a wealth management firm? What follows are some tips from the experts.


Do You Fit the Mold?

Most banks set some parameters about the amount of financial assets their private banking clients have to be managed, and it’s usually a minimum of $1 million. But depending on the financial institution, net worth isn’t always the determining factor.

“For us, it’s the complexity of a customer’s needs that determine who is a private banking client,” says RBC Centura’s Terry. “It’s more about the numbers of services and products needed.”

Baby boomers looking to make a plan to pass along their business to their children or sell it at retirement require extensive planning services. Others wanting help to shelter themselves from taxes amid their personal finances and business need a comprehensive approach. High-wealth individuals wanting to give charitable gifts need guidance on how to best do that.

“Our customers have complex financial situations that require complex solutions,” says Terry. “And they are so busy with the day-to-day that they don’t have time to coordinate all of these activities, even if they have the expertise.”

Potential wealth management customers should consider not only their needs today, but also services they will need in the future. It’s never too early to begin building those relationships, says Brenda Seligmann, North Carolina market executive for Bank of America’s private bank, with offices in Charlotte, Asheville, Greensboro, Winston-Salem and Raleigh. Bank of America’s private bank customers must have a minimum of $3 million in liquid wealth. 

A business owner may not be ready to retain services to help transfer a company to his heirs, but one day that transition will be a critical step. “I think it’s important for individuals to explore all of our offerings,” says Seligmann. “We encourage our customers to talk about the future and consider what we offer when their needs change.”


What Is Your Goal?

“We start with a planning-centric approach,” says Wachovia’s Brown. Both the original Wachovia and First Union National Bank had long histories and deep roots taking care of successful families. Since the merger in 2001, the new Wachovia has taken the best product and processes of both banks. “We first ask what’s important to the clients; what are their hopes, dreams, fears and aspirations,” Brown adds. “Then we carefully review the plans and services to use.”

The result is that customers are assured that all of the parts of their busy financial life are integrated. A relationship manager works directly with the client and then brings in the needed services of experts in investments, insurance, trust, credit, charitable giving and financial and estate planning.

Yet a comprehensive array of services doesn’t mean every wealth management customer uses the bank’s offerings in every service. Many have a long-standing relationship with a certified public accountant or a trust attorney.

“Often times clients have a long-trusted advisor who fills a niche for them and they may feel they are being well-served,” says Brown.

“We really don’t displace the estate planning attorney or the CPA,” says U.S. Trust’s Cole. “We like to be the quarterback of the team.”

In those cases the bank tries to be a leader in the relationship, coordinating the multitude of activities happening in a client’s financial life.


How to Pick a Financial Planner

A certified financial planner (CFP) is often the person at the forefront of mapping a comprehensive financial plan, and that’s the credential those shopping for a financial planner should be looking for. To earn a CFP designation, the financial planner must have completed an extensive education process, passed an exam and have at least three years of planning experience.

Wachovia, for example, has 78 certified financial planners among the 968 employees in its wealth management team. According to the Certified Financial Planner Board of Standards Inc., there are 1,121 CFP certificants in North Carolina practicing asset management.

Wealth management departments are also filled with planners who have earned CPA or JD distinctions or MBAs. As well as certifications and earned credentials, specific expertise is a valuable resource to bring to bear on a client’s portfolio, says Bank of America’s Seligmann.

“We keep a single, local point of contact with our private client advisers,” says Seligmann, “but if our client owns oil and gas properties, we bring in our oil and gas experts from Texas.”

The bank’s vast resources allow it to offer clients a team approach with depth in specialized areas.

Beyond advanced certifications, prospective wealth management customers should be looking for an organization they can put their confidence in and a financial adviser they trust.

“I would want the comfort of knowing I would be working with the same people for a long time,” says Smith. “I’d want to see stability within the group.”

 
Face-to-Face Contact

Many financial institutions will structure their wealth management departments with a relationship manager who deals directly with clients and helps to bring together the necessary experts who will work with the customer’s financial plan. Those experts often work in areas of investment, insurance, credit and trust. Depending on the complexity of the client’s portfolio, those experts are frequently in one location but sometimes based elsewhere within the bank.

Community banks are more likely to offer customers direct access to the person actually managing their money. U.S. Trust, for example, promises that clients will meet directly with their portfolio manager.

Potential wealth management customers should consider what level of access they are comfortable with and how closely they want to be in communication with their contact.

“The level of contact that’s expected is different with each client,” says Bank of America’s Seligmann. “We have clients who live on a yacht part of the year and say, ‘send me an email once in a while,’ while others want to be called more often.”

At Bank of America, the client contact asks new customers how often they want to hear from their banker and on what topics. That way, says Seligmann, the bank is best prepared to meet each client’s expectations.


Watch Conflicts of Interest

Some financial services companies also raise capital for corporations and municipalities by underwriting stocks and bonds and sometimes those stocks and bonds are sold to the same bank’s investment clients. When financial institutions are functioning both as the seller and the buyer it can create at least the appearance of a conflict of interest.

The question for many banks is whether they continue to try to provide the investment side of the equation within the wealth management spectrum, says Chas Burkhart, founder and chairman of Rosemont Investment Partners LLC and a frequent speaker on asset management issues. “As an asset gatherer it is their duty to find the best product they can and give it to their clients at the best price,” says Burkhart. That best product at the best price may not always be the bank’s proprietary products.

First Citizens does not have its own products for sale, says Smith, though he believes the financial institutions that offer their own products do so ethically. “That has certainly weighed into our decision when we’ve reviewed whether we want to move into that area,” says Smith. “But despite what you see in the headlines, not many firms would allow it to become a conflict.”

Bank of America customers are offered both proprietary products as well as non-proprietary products to purchase, says Seligmann, and clients are never confused about which is a Bank of America product. “The sophisticated clients we’re dealing with want to have both,” she says.


Look for High-Touch Service

Most wealth management departments use commercial programs to handle the basic nuts and bolts of financial planning. Some firms run model portfolios in which all clients have the same portfolio composition. But as individual portfolios become more complex, customized planning is also needed.

When shopping for a wealth management firm, inquire about what software and techniques are used for planning and asset allocation. “We frequently work with other firms that allow us to do the level of customization the client needs,” says First Citizen’s Smith.

Seligmann of Bank of America says wealth management shouldn’t emphasize product pushing, but instead an individual approach to each client’s needs. “Not every client should have 60 percent equities and 40 percent bonds,” she says.

“The most important thing any client can do is have an open and thoughtful conversation with their adviser about what’s important to them,” says Brown of Wachovia. “Until the adviser begins to understand those things it’s hard to do the most effective job making sure their needs get met.”

And finally, the level of service a firm offers as it delivers results is the true measure of a wealth manager. “I’d look for high-touch service,” says RBC Centura’s Terry. “You want somebody who will give you a high level of service, contact you often and think of you when new things become available. You’d want to be able to call one person who would move all of the wheels for you.”



Check Out These Tips for Cutting Your Taxes
The third-largest tax cut in history, signed into law this spring, offers big advantages to investors looking to return to the stock market or those who’ve managed in recent years to eek out gains.

The Jobs and Growth Tax Relief Reconciliation Act of 2003 promises to reduce taxes by some $350 billion over 10 years. The big plus for investors is the reduction in the rate that dividends are taxed, says Tom Wiggins, vice president and manager of tax and estate strategy for First Citizens Bank.

Investors previously were taxed up to 35 percent on stock dividends, but the rate is now held at a maximum of 15 percent. “There’s a big incentive to invest in stocks that pay dividends over investments such as Roth IRAs,” which are taxed as ordinary income when the money is taken out, says Wiggins. “It certainly should have a positive impact on the stock market.”

Investors who are ready to sell stocks will see an added benefit. The capital gains rate has been reduced from 20 percent to 15 percent for assets that have been held for at least a year. That means someone who bought $10,000 worth of stock more than a year ago and sold it for $15,000, the $5,000 gain would be taxed at a maximum of 15 percent. “The president had wanted to do away with taxes on dividends,” Wiggins says. “This is partial relief.”

Public companies are now feeling pressure to offer dividends to make their stock more attractive to investors. Overall income tax brackets were reduced across the board with the act, with the top bracket getting the biggest reduction. The top rate of 38.6 percent was reduced to 35 percent, the 35 percent rate to 33 percent, 30 percent to 28 percent and 27 to 25 percent.

Married couples will get relief from the so-called marriage penalty that gave single taxpayers favor over married couples filing jointly.

The 15 percent marginal bracket has been expanded to be twice that of single taxpayers for 2003 and 2004, which provides a savings of up to $935 for married taxpayers.

The standard deduction for married couples that don’t itemize has been raised by  $1,550 to $9,500. Depending on the tax bracket, people who don’t itemize could save from $155 to $542, but those who itemize will see no benefit from this change.

Under the tax act, businesses have new reasons to make equipment purchases. In what’s called the Section 179 deduction, businesses are allowed to expense this year equipment costs of up to $100,000 — up from $25,000 — that they would have previously had to depreciate over a period of years, Wiggins says.

Overall, it’s a large but temporary tax break, notes Wiggins. Unless Congress takes action the tax cuts will be in effect from 2003 until 2010, with various phase-ins and phase-outs during that time, the rates will rise again. “Circumstances are different for everyone,” says Wiggins. “People should talk to their tax adviser to determine the best way to take advantage of these tax cuts.”

-- Laura Williams-Tracy


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