Wealth Management at FirstMerit

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David R. Evanson

Bank Investment Consultant, Summer, 2003

George Paidas faced a familiar bank challenge: how to harness disparate banking efforts to better serve affluent clients and thereby improve performance.

As head of FirstMerit Wealth Management, Paidas convinced his firm – Akron, Ohio-based FirstMerit Financial Corp., with $10.5 billion in assets – that the solution lay in more effectively coordinating the different wealth management disciplines in the bank, which included trust, brokerage and insurance services.

To start, Paidas formed a Wealth Management Services group, which added financial planning and investment management expertise to the existing wealth management product offerings ext, he reorganized the entire division in hub-and-spoke fashion, with a new group, Private Client Services, in the middle. To head the group, Paidas hired Samir D. Gautam, previously in charge of the Cleveland-area private banking operations for Key Corp., FirstMeritzzs biggest competitor.

According to Gautum, whose arrival this past spring caught the attention of competitors throughout northeast Ohio, there was lots of work to be done.

“Prior to the formation of Private Client Services,” says Gautam, “private bankers were calling on prospects and leading with depository, lending and cash management products.”

Not that the formula didnzzt work. FirstMerit Private Banking had some $2.5 billion in assets under management. But as account minimums were increasing at the major brokerage firms, Gautam says there was an opening in the market for a provider who could serve clients with household incomes of $150,000 and investable assets of $250,000, a cohort whose needs can be addressed profitably.

The area is replete with such investors. While northeast Ohio is known for industrial names such as Goodyear, TRW and Eaton, in truth, 90 percent of the businesses in the region are small businesses, and the majority of these are owner-managed.

As a result, when Gautum was building out the wealth management he sought practitioners with expertise in business and well as personal financial planning.

Bank competition was another reason FirstMerit enhanced its wealth management division, according to Gautum.

“Larger banks were calling on affluent FirstMerit customers, and we needed to put our arms around that relationship and close off competition. We were doing it in bits and pieces,” he says. “But there was no cohesive approach. We needed to come up with a much more systematic fashion of cross-selling.”

Under the new structure, the private client services relationship manager is at the core of the relationship with the customer. According to Gautum, the relationship managerzzs job is to harness all the internal resources a client might need to address their entire financial picture. These include several groups with a focus on different disciplines. For instance, FirstMerit Trust offers asset management products. FirstMeritzzs captive insurance group, Abell & Associates, provides executive compensation consulting services. Therezzs also financial planning and asset management services, as well as securities brokerage and other transaction services.

Under the new regime, rather than leading with a product, relationship managers lead with something more effective: nothing.

According to Lucia Pileggi, previously a private banker and now a private client services relationship manager, “When I approached a prospect before, my orientation was loan focused ow, Izzm not focused on anything other than understanding their complete financial picture.” After an initial client discussion with Pileggi and possibly other wealth management professionals, the division creates a free financial plan, which Pileggi calls “our investment in the relationship.” (The bank charges up to $10,000 for a comprehensive plan.)

Working as a decentralized team, Pileggi and three other relationship managers serve the Canton area.

“Lending authority is at the local level,” she says, “with loan officers making decisions on loans up to $5 million. Trust is also offered from local offices. And marketing support, though centralized, is focused on local markets.”

Robbie Ross, a relationship manager covering Mansfield and Wooster in central Ohio, says that performance goals are established at the local level as well.

“While there are standardized products, each region has a lot of influence over the goals in terms of the number of clients we bring into the program. Ultimately, it depends on the markets you are in. For instance, we had no presence in Mansfield. I had to be aware of competition there and take into that into account when establishing the goals. On the other hand, when I hired a second relationship manager in Wooster, the goals were much higher.”

A decentralized approach naturally leads to a focus on community involvement.

“FirstMerit takes its role as a corporate citizen very seriously,” Pileggi says. “Our team members are encouraged to be community members; we are not just a business in the community. In Canton, for instance, we are involved in (the Pro Football) Hall of Fame sponsorships and activities and our people sit on the boards of non-profit organizations.”

As FirstMerit began re-engineering its wealth management product offering, one area of particular importance was asset management. As 2002 came to a close, the affluent individuals that FirstMerit hoped to serve were looking for ways to get back into the market, though in a more reasoned and sensible fashion.

According to Wes Meinerding, vice president in the firmzzs Akron office, “FirstMerit has always been a proponent of diversification and asset allocation.” And while the bank was there in spirit, the trust group offered only proprietary large-cap growth and fixed-income asset management. To solve that problem, FirstMerit began offering separately managed account (SMA) services, initially through SEI Investments and later through AdvisorPort ot surprisingly, Meinerding says FirstMerit plans to use SMAs extensively with clients with $1 million or more in investable assets.

“Through our SMA program, we can develop specific investment strategies across a wide range of investment styles – growth, value, large-, mid- and small-cap, among others – that exactly match a clientzzs tolerance for risk,” he says.

Additions to the program are coming, as well as more education and communication. Gautum has put together an informal, but regular training effort that includes a monthly discussion on some aspect of a product or service offered by the Wealth Management division. So far, relationship managers have received additional training in tax, estate planning, insurance, financial planning and employee benefits.

The open question, of course, is whether FirstMeritzzs model is working. The company is committing substantial resources to a force of 22 relationship managers, embedding themselves in the community, and spending real money to understand client needs.

“Our focus, first and foremost,” says Pileggi, “is client retention. The primary purpose of redesigning the wealth management service offering was to keep our competitors at bay, and as a result, thatzzs where I focus my energy.”

She says the holistic approach wrapped around a comprehensive financial plan is paying off, noting that her close rate is 100% in terms of at least one wealth management product or service sold once she presents a financial plan.

“By the time we get to the end of the process, the client is committed,” she says. “They know we are committed and they want to hear what ideas we have.” Copyright 2003 Thomson Media Inc. All Rights Reserved. http://www.thomsonmedia.com http://www.bankinvestmentmktg.com