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The not-so-private bank: South Florida's community banks have entered the private banking fray and are competing for tomorrow's millionaires today

South Florida CEO, March, 2005 by Jennifer LeClaire

Private banking, by definition, caters to wealthy individuals. But even the word wealthy is undergoing a change of meaning as financial institutions compete for more customers.

Catch phrases such as "potentially prosperous" have snuck into the lexicon of private bankers throughout South Florida as expectations have set in about the massive intergenerational transfer of wealth that is just beginning to be felt here.

"Private banking used to be pretty exclusive," says Teresa Valdes-Fauli Weintraub, CEO of Fiduciary Trust International in South Miami. "Now private banking services are much more available to the rank and file."

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For the last several decades, South Florida has, overall, experienced a period of strong economic growth lead primarily by entrepreneurs. Many of those entrepreneurs are now facing choices about what their personal financial legacies will be to their children and generations to come.

"South Florida is younger and more entrepreneurial" than other large banking markets, Weintraub says. "In order to grow, private banks need to offer services that meet the goals of that changing demographic."

Private banking is a one-on-one business of high-touch customer relationships that once were reserved for an elite group of wealthy individuals, who usually came from a well-off family background. Services at private banks typically include wealth management and personal or business loans.

It is one of the most profitable and fastest-growing niches in the financial services sector, experts say. But it is also one of the most competitive and fragmented niches.

With so much self-made wealth now, private bankers are opening their doors not only to entrepreneurs but also to their children and families. The idea of diversifying the customer base is akin to investing in a budding industrialist today with an eye to big dividends tomorrow.

That strategy follows closely to the demographic shift the entire nation is undergoing, experts say.

The Stakes

Multi-millionaires still make up the majority of the customer base for private banks, highend brokerages, wealth management groups and trusts. Most of these institutions tow to a strict minimum of investable assets before a client is offered the exclusive services.

According to projections by Boston University's Center on Wealth and Philanthropy, an intergenerational transfer of wealth began in 1998 and is expected to top at least $41 trillion nationwide by 2052. Moreover, PricewaterhouseCoopers, in its 2004 Global Private Banking and Wealth Management survey of banks, says that intense competition for clients is the single most important issue driving strategies and shaping revenue growth in the wealth management industry.

One such strategy is to lower the investment thresholds to allow younger clients or those with fewer assets to be served by the private bank. Some private banks have dropped their requirements to $100,000 to $500,000 of investable assets, down from the traditional $1 million or more.

Bankers say this segment of the population is younger, more technologically savvy--and is becoming increasingly affluent in South Florida. Since many in this group toiled hard for their money, they may be less loyal to a financial service institution than a son or daughter who inherited the family fortune.

"The industry is recognizing that it's very short-sighted to have a finite definition of what a private banking and wealth management client looks like," says Steven Hayworth, CEO of Coral Gables-based Gibraltar Bank. His bank, Hayworth says, resists "the temptation to profile individuals. We try to look for potential. We are big fans of loyalty and loyalty takes time to establish."

Gibraltar does not set minimum net worth or income requirements for its private banking customers. Instead, Hayworth says his bankers seek out professionals who have the potential to generate substantial incomes and advise them on how to build a foundation for prosperity. Since Hayworth instituted the new strategy in 1994, Gibraltar's assets have grown to $700 million.

"I'm a big believer that the stewardship of wealth is the joint responsibility of the wealth creator and his financial service provider," Hayworth says. "If stewardship is done well, then clients are financially successful for generations, and they become better clients because they understand how to preserve and grow their wealth. That is not a concept that is only applicable to families that have $15 million in assets."

Jay Pelham, senior vice president of private banking for Miami-based Bank United, takes a similar approach. Launched in 1984, BankUnited is the largest bank headquartered in Florida with more than $8 billion in assets, but Pelham says the bank strives to maintain a community feel even when it comes to building relationships with high-net-worth customers.

"A private banking client doesn't necessarily need to be a wealthy client," he says. "At BankUnited, a private banking client is someone that has financial needs that are perhaps a little more sophisticated than the average client, such as investment resources, international banking and custom loans."

Business Services Industry

The not-so-private bank: South Florida's community banks have entered the private banking fray and are competing for tomorrow's millionaires today

South Florida CEO, March, 2005 by Jennifer LeClaire

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