Fitch: US Banks' Shift to Wealth Management Generally Positive

CHICAGO--()--Efforts by many US banks to offer more wealth-management capabilities are generally positive for diversifying earnings and increasing revenue per customer, as growth in core bank products remains tepid and net interest margins compressed, according to Fitch Ratings.

Wealth management, including advisor-based guidance and asset management, provides recurring sources of income and requires less capital usage than traditional bank loan products. Wealth management services can strengthen and make stickier relationships with good customers, which tend to provide additional deposit funding, as well as opportunities for cross-selling a bank's core products, such as mortgage lending.

Not surprisingly, many banks, as well as other financial institutions such as retail brokers and asset managers, have been bolstering their wealth management platforms over the last few years. This has included poaching financial advisory teams, boosting the hiring of financial advisors and acquiring wealth-management firms. One example of the trend is Chase Private Client, where Chase has re-formatted its branches with a focus on attracting wealthier customers through dedicated service teams and premium banking services.

Wealth management strategies tend to segment customers by investable assets or net worth. While banks tend to seek out the mass affluent and high net-worth market segments, many wealth management services are accessible to mass market banking customers.

We have also noted that several banks are investing in technology and tools to allow customers to track investments and make investment decisions through the bank's interface. Technology platforms and brokerage services are scalable and can help grow both assets under management and transaction fees. One example is Merrill Edge, Bank of America's platform to sell investment management services to the bank's mass affluent and mass market customers.

Regardless of which market segment may be targeted, we see wealth management as diversifying a bank's revenues away from its core interest rate-sensitive loan products. Some banks are also using wealth management to help subsidize traditional banking products.

While compensation costs tend to be higher in the high net-worth segment, banks are focused on having teams service clients in order to reduce their reliance on one advisor. To the extent that banks are successful with the shift, this strategy may help insulate performance over time.

With appropriate control of costs and management of the many compliance issues, wealth management businesses can help support a company's ratings. We believe the distribution force of wealth management can be a key competitive advantage, especially for larger firms. One risk, however, is the possibility that, as competition for advisors and wealthier clients heats up further, profitability may be marginalized.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Contacts

Fitch Ratings
Justin Fuller, CFA
Senior Director
Financial Institutions
+1-312-368-2057
70 West Madison Street
Chicago, IL 60602
or
Matthew Noll, CFA
Senior Director
Financial Institutions Fitch Wire
+1-212-908-0652
33 Whitehall Street
New York, NY
or
Media Relations
Brian Bertsch, New York, +1-212-908-0549
brian.bertsch@fitchratings.com

Contacts

Fitch Ratings
Justin Fuller, CFA
Senior Director
Financial Institutions
+1-312-368-2057
70 West Madison Street
Chicago, IL 60602
or
Matthew Noll, CFA
Senior Director
Financial Institutions Fitch Wire
+1-212-908-0652
33 Whitehall Street
New York, NY
or
Media Relations
Brian Bertsch, New York, +1-212-908-0549
brian.bertsch@fitchratings.com