Banks across the country are trying to attract wealthy clients as economic and regulatory factors weaken traditional banking businesses and the wealth gap increases. Wells Fargo is one of many companies beefing up its wealth management business, announcing the launch of a new company serving individuals and families with $50 million or more in assets.
Sandy Deem, spokeswoman for Wells Fargo, said the new business is a "natural next step" in combining Wells Fargo with Wachovia, which it acquired in 2008.
Headquartered in San Francisco, Wells Fargo announced last week that the combined company will have a staff of about 300 and $27.5 billion in client assets. Named Abbot Downing, the boutique will be a combination of its private asset management firm, Lowry Hill, and Wells Fargo Family Wealth.
Deem said Wells Fargo announced within the company last January the intent to combine the two businesses, and the latest announcement is not related to its cancellation of its debit card pilot program.
Large banks, such as Bank of America and Chase, announced in recent weeks they will not charge customers for using their debit card as a result of the Durbin amendment of the Dodd-Frank Act. The amendment caps fees banks charge merchants when customers make debit card purchases to about 21 cents. Before the amendment was implemented on Oct. 1, the average fee banks charged merchants was 44 cents per transaction.
On Oct. 28, Wells Fargo announced it is canceling its test program of $3 monthly debit card fees in five states, which began on Oct. 14.
Maria Aspan, consumer finance editor with newspaper American Banker, said banks are struggling to make more money on consumers, including with debit card fees.
"They're finding it hard to charge more for existing services," Aspan said, in part due to regulation and tight-fisted customers.
Instead, banks are building business by offering more services to build relationships with existing customers, including the super-rich.
Abbot Downing will serve wealthy clients nationwide through offices in San Francisco, Los Angeles, Scottsdale, Denver, Houston, Minneapolis, Chicago, Philadelphia, Charlotte, Winston-Salem, Raleigh, Naples, Jacksonville, Washington, D.C., and Palm Beach.
Wells Fargo is certainly not alone in courting the rich, as banks have been building their wealth advisory businesses while their investment banking divisions suffer major losses. Last month, Goldman Sachs reported its second loss in its history as a public company due to a poor trading environment, including companies that have postponed IPOs and equity and debt issuance.
Swiss-bank UBS is reportedly building its wealth management business even after it announced 3,500 layoffs in August, half from its investment bank.
Barclays Wealth, a business under the bank, Barclays, has hired at least six wealth managers from rivals, as it has been growing its wealth advisory business in the U.S. since it acquired Lehman Brothers' private investment management unit after its fall in 2008, Dow Jones reported.
While the rich get richer and poor get poorer, the widening income gap may also be boosting wealth advisory businesses. The age-based wealth gap skyrocketed 47:1 in 2009 compared to 10:1 in 1984, Pew Research Center announced on Monday.
Households led by an adult ages 65 or older had median net worth of $170,494 in 2009, compared to $120,457 in 1984, adjusted to 2010 dollars, for a gain of 42 percent. Households headed by an adult under the age of 35 had median net worth of $3,662 in 2009, compared with $11,521 in 1984: a decline of 68 percent.
Aspan said growing awareness of the increasing gap, including angst against banks in the Occupy Wall Street movement, means we won't be seeing many television commercials for these new businesses in the mass market.
"Right now, with Occupy Wall Street, the climate is so fraught that they might want to be careful how they announce and advertise these things," she said. "Wells Fargo is probably trying to reach out to existing customers who it knows have the money."