Trust and Private Banking Mergers Take Shape: The Integration of Trust and Private Units Benefits Affluent Clients and the Institutions Servicing Them

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Banks that have not yet begun the process of merging their trust, investment management, and private banking groups into a single business unit may soon wish they had. Such is the consensus of current and former executives of banks undergoing the sometimes awkward transition from yesterday's way of serving the affluent client to what works today.

Integrating trust and private banking units boils down to one basic premise: affluent customers are better served by interacting with one organization and one relationship manager than multiple ones. The hard part, note bankers and the consultants helping them, is persuading entrenched management and customer-contact staff to see the light and participate in what amounts to a sea change in many institutions.

On one point all parties agree: the merging of trust and fiduciary services with private banking can't just take place on paper. Successful efforts include steps to mix within offices the staffs that specialize in particular products.

"We've pulled together those people not only organizationally but physically," says Alan Trench, senior vicepresident of Buffalo-based Marine Midland Bank, which has $16 billion in assets. Trench heads the bank's Private Clients Group in New York City. "Now the trust officers and investment managers and municipal bond dealers and private bankers are together, talking about the issues their clients are concerned about."

Customer is king. Cultural differences and cumbersome client-referral policies can complicate affluent market integration efforts. But even those issues are giving way to the need to satisfy customers and retain their business, because nonbank competitors are just as interested in serving the affluent market as banks are. Integration of trust and private banking efforts conveys to affluent customers a genuine interest in being the management team responsible for handling their assets.

"Banks traditionally have organized their businesses for their own convenience rather than for the convenience of their customers," notes Trench. "Customers are saying to us that they really want a relationship with the bank," says Trench. "In order to provide a relationship, we have to have all the services that a high-net-worth client would be interested in under one roof."

Marine Midland made the decision early last year to integrate the bank's investment management, trust and estate services, custody, and private banking businesses. It's still too early to gauge accurately the effects of the decision on the division's clientele, but Trench senses some subtle effects nonetheless.

Customers told the bank they wanted more contact from the bank, says Trench. Therefore, "We're starting to manage the customer-contact people very much the way we manage the salespeople. We monitor who they call, why they call them, and what they actually discuss with the client."

Fee-based revenue. Driving efforts to improve trust and private banking product delivery in the first place was the potentially higher revenue that could be earned from fee-based services compared to credit-based ones. The idea was not to replace one with the other, but to broaden the scope of services available to the trust or private banking client.

"Historically, private banks have been credit driven," says Michael Cassell, the former executive vice-president in charge of private banking at Manufacturers Hanover Trust Co., New York. "We recognized that to be successful, the private bank was going to have to be more investment driven."

Cassell was responsible for merging MHT's trust and private banking businesses, which resulted in MHT's integrated Private Bank. Cassell continued his work for a time during the institution's merger with Chemical Bank.

A growing number of industry experts, including Cassell, think the private banking market should be viewed as a life cycle/wealth continuum, where the focus is on meeting customers' financial needs as they evolve. …