Up-and-Coming Assets

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1 Up-and-Coming Assets Serving the wealth management needs of future affluent generations By Bridget McCrea With the largest wealth transfer in America s history just around the corner, community banks are stepping to the plate to offer the wealth management services that were once the domain of trust companies, brokerage firms and financial planning specialty firms. To capture this market, community banks are using components like ICBA Financial Services wealth management services and ICBA Mortgage s reverse mortgage, no document loan and Alt-A loan products. Bill Reid, president and CEO of Memphis-based ICBA Financial Services, sees significant opportunity ahead for community banks looking to tap this segment. Baby boomers, who traditionally represented the best loan candidates for community banks, are reaching the point where they re preparing for retirement, Reid says. They re going to be liquidating hard assets and replacing them with By 2052, baby boomers will inherit an estimated $40.6 trillion from their parents. 54 IndependentBanker Illustration By Randall Nelson more liquid investments to furnish the income for their retirement, as well as life insurance and longterm care insurance. Still, while repositioning assets, high-net-worth baby boomers like to spend and do so with style. That s why ICBA affiliate TCM Bank, a limited-purpose bank that purchases community bank credit card portfolios, offers the Visa Signature credit card through ICBA Bancard. The upscale product is designed to arm community banks with products that wealth customers want. Key features include no preset spending limits, concierge services, a comprehensive rewards program, an extensive list of cardholder benefits and substantial credit lines at competitive rates. While community banks haven t traditionally offered such products, Reid says those that make the

2 Up-and-Coming Assets move now will find themselves ahead of the game when it comes to serving America s aging population. For the most part, community banks haven t been as aggressive about filling that need as the large, national banks have been, says Reid, who points out that most community banks lack the brokerage, insurance and trust platforms that work hand in hand to create an effective wealth management services strategy. It s still a new business for a lot of community banks, he says. And while they may have looked at brokerage and insurance separate from their traditional banking, most haven t packaged brokerage and insurance along with the traditional products to create a single relationship with their baby boomer customers. Building Blocks Banks looking to incorporate wealth management into their lineup need to get up to speed on what s happening, says Reid, and then prepare their institutions accordingly. That s exactly what Farmers & Merchants Bank and Trust of Burlington, Iowa, did three years ago. With seven locations, 75 employees and $225 million in assets, the bank opened its trust department in 1990, but didn t put much emphasis into promoting it until just a few years ago. We were an old-school type bank, says John Wagner, senior trust officer. Customers knew that if they needed us that we d be happy to help, but we weren t out there prospecting. That changed in 2003, when F&M Bank & Trust merged with another bank that had a brokerage unit. Knowing that a merger of trust and brokerage services would mean being able to better serve customers wealth management needs, Wagner spoke with representatives from Wells Fargo and other large banks to find out what they were doing in this realm. I came to the conclusion that we needed to do something a bit differently than simply having a trust and a brokerage department working along their own lines, says Wagner, who has been 56 IndependentBanker

3 working to knit the two together since August After developing a strategic plan that clearly outlined how that would happen, he says, bank executives spoke with the heads of both units and their employees about how the process would work. At the heart of the bank s strategic plan is one clear mission: to provide financial solutions (not products) and comprehensive answers to customers. We wrote down the guiding principles and vowed to always keep the client s best interest in mind, says Wagner, who adds that the bank has had to tackle a few challenges in its quest to merge the trust and brokerage operations into one. For one, Wagner says most people perceive trust services as only for the rich. Teaching both employees and clients otherwise has been an educational process, he says. Also, many perceive brokerage to be tied to commissions and assume that certain decisions aren t always in the client s best interest. To overcome the latter, IndependentBanker 57

4 Up-and-Coming Assets At the heart of the bank s strategic plan is one clear mission: to provide financial solutions (not products) and comprehensive answers to customers. We vowed to always keep the client s best interest in mind. John Wagner, Farmers & Merchants Bank & Trust Wagner says the bank s brokers all work on a salary basis, and that the institution is developing a bonus structure for those individuals. Calling its new wealth management operations Integrated Financial Services, F&M Bank & Trust is on track to bring in $1 million in non-interest income for the bank for the remainder of the year a goal Wagner says is very achievable, based on its performance so far. We re already looking at $500,000 in new investment business in May alone, Wagner says. On the trust side, we re getting a lot of referrals and looking to grow that department extensively over the next year. Lending a Hand Community banks can offer myriad products and services to their high-net-worth customers. Through ICBA Mortgage, for example, member banks have a number of home loan servicing retained options (the bank handles the servicing) or servicing released options (a third party handles the servicing). The program s mortgage products also include reverse mortgages, jumbo loans, no doc loans (for individuals who don t want to divulge earnings through a conventional lending process) and Alt A loans (reduced-documentation mortgages, for example), among others. Veida Dehmlow, partnership management officer at ICBA Mortgage, says being able to offer a wide range of mortgage products can help banks better serve their most affluent customers. It s all about cross selling, she says, and being able to provide as many different types of financial accounts as possible. It s something larger banks have preached for years, but that, for many community banks, were out of reach. Higher-net-worth individuals will have more disposable cash and funds, and the idea is to get them on deposit at your bank, says Dehmlow. You can do this through auto loans, small business loans, mortgages, credit cards, business credit cards and other products. Spreading the Wealth Another way community banks can capture highnet-worth customers is through Promontory Interfinancial Network s Certificate of Deposit Account Registry Service (CDARS). Available through a cooperative alliance with ICBA, this program provides financial institutions with a network of more than 1,000 banks whose synthetic size helps individual members to compete more efficiently. Member banks can offer their customers up to $20 million in FDIC insurance. To participate, banks pay a one-time implementation fee that ranges from $2,000 to $35,000. Banks also pay a transaction fee that ranges from 2.5 basis points to 24 basis points. Visit to learn more. Beyond Gold, Beyond Platinum: Visa Signature Community banks can now attract and retain top tier customers with Visa Signature offered through ICBA Bancard and TCM Bank, N.A. The elite features of this next generation card include no preset spending limit, 24/7-concierge services, airline rewards redeemable on any airline with no blackout dates, and an array of travel and emergency assistance as well as purchase enhancements designed to satisfy the most demanding consumers. Contact Paul Weston at paul.weston@icba.org or (888) ext IndependentBanker

5 Offered through a two-year-old Capitalizing on program from Home Equity ICBA Mortgage, To learn more about ICBA s reverse reverse mortgages mortgage program, contact Elizabeth Deal at (800) or go popularity among are also growing in to those whose often considerable assets are significantly tied into big homes. Non-recourse loans that allow senior homeowners age 62 and older to convert home equity into cash without leaving their homes and without income qualifications, these mortgages can facilitate financial planning and help the 34.5 million Americans currently age 65 or older (according to the U.S. Census Bureau) purchase a second home, pay off an existing mortgage, set up a college fund for grandchildren, purchase longterm care insurance or simply pay off bills. Elizabeth Deal, vice president at ICBA Mortgage, says that community banks based in metropolitan areas should be especially aware of the need for bank-based wealth management services. You want to be able to compete for those affluent customers, says Deal. By capturing the money that those customers are taking out of their homes or investments with products like Alt A and jumbo loans, banks can help retain their business in the future. And remember, Reid warns, that the opportunity to snag those customers is now, not later. The first of the baby boomers turn 60 this year, so the process of changing the form of their assets is taking place right now, he explains. Quite frankly, the next 10 years will be the prime years that this opportunity will be available for banks. ib Bridget McCrea is a free-lance writer in Dunedin, Fla IndependentBanker 59