• Why Wealth Management merits emphasis by commercial bankers (and vice versa)

• The key roadblocks that constrain a unified approach

• Some practical issues that senior bankers need to address

Why Wealth Management Merits Emphasis. Three major reasons should be propelling bank management toward increased linkages between commercial banking and wealth management activities:

1.      The revenue opportunities are significant. Many small business owners possess substantial net worth; Oxxford Information Technology states that 35 percent of owners hold more than $500,000 in net worth. While most of this reflects business and residential investments, the opportunity for serving these customers with a myriad of loan and investment products certainly exists.

On a per capita basis, both the net worth and revenue opportunities are significantly greater with middle-market business owners.

2.      Macro-trends may demand linkages. The Business Banking Board recently published its report Window on the Future. It featured ten predictions about the future profit path for commercial banking. Trend number four focused on what they termed “Truly Integrated Wealth Management.”

The report stated: “The large number of businesses anticipated to change hands in the next five years will create the scale necessary for banks to offer specialized products and services focused on succession management.” The report goes on to underscore the opportunity that banks have to assist in the succession process, advise and invest for the seller, and support the financing and growth needs of the buyer.

Both the trend and opportunity are very powerful.

3.      Smart competitors are focusing on both the personal and business needs of customers. Most notably, Merrill Lynch has established a process for meeting the personal and business needs of owners, leveraging the Financial Advisor’s (that is, broker’s) relationship with the owner.

While last week’s New York Times featured an article outlining potential credit problems at Merrill’s Business Financial Services group, the fundamental approach being followed by that group remains a model for banks considering how to gain wallet share.

We know of a number of banks, both large and small, that are exploring how to make the personal/business linkage model work. Those that succeed have the opportunity to move share.

Key Roadblocks. Roadblocks are both external and internal. From an external perspective, the customer is slow to give investment and wealth-building opportunities to their bankers. Many customers see banks as the “go to” place for a loan or a transaction account, but in the words of one customer: “If I want to make money, I go elsewhere.” Banks must provide their customers with a rigorous and well-developed value proposition for why a businessperson should trust his or her wealth-building requirements to a bank rather than an investment firm. Too often, banks fail on this score. The customers know why the bank wants to do this; what they do not know is why they should want to take this step.

As difficult as the external issues are, so too are the potential internal conflicts. Speaking with me at the conference were John Kosik and Ken Goldberg of Cole Taylor Bank. Both John, the head of Wealth Management, and Ken, the head of Middle Market Banking, report to the same business head. That represents an ideal organizational situation. Too often, however, reporting lines increase internal frictions and make “cross-border” cooperation difficult to achieve.

Bank leaders need to encourage and require organizational frictionlessness between areas such as Private Banking, Wealth Management, and Commercial Banking. Obviously, that is easier said than done, but, nonetheless, critical to success. Again, top players operate with managers who provide both required incentive carrots and the organizational discipline sticks.

Practical Issues. Within banks, there are few areas receiving greater attention than “Wealth Management.” While banks define their targets and focus differently, every bank appears to want to serve the wealthy and believe that they can do so. Nonetheless, we suggest that the first practical issue that banks consider is whether they can make the economic case to justify the investment required for this effort. Does your current or likely customer base offer substantial wealth-related opportunities? What do the numbers tell you?

Second, who is the right target customer? In many cases, banks need to lower their aim from the $5 million+ customer to the $1-3 million, or emerging-wealth target. Doing so requires a more efficient delivery system and generates lower per-customer revenue; but it also increased the likelihood of success.

Third, as mentioned earlier, what is the value proposition? Does it truly offer the customer enough?

Concluding Thought. Linking Wealth Management to Commercial Banking can result in an economic bonanza for banks that carefully structure their approaches and invest extensive time and effort in execution. Commercial bankers should see and value the benefits of wealth management cross-sell to their core relationships. Nevertheless, banks’ Wealth Management groups will often need to take the lead in conducting the necessary analysis, creating the offer, and winning over internal bank constituencies.