Wealth Management And Private Banking Remain Hot-But Have Their Challenges, Too

Are the wealth management and private banking sectors "the" places to be right now? In some ways, yes, but don't expect a complete bed of roses, says one independent advice giver.

Reuters reports this week that "sky-high" pay and bonuses for investment bank counterparts may once have turned private bankers green with envy, but the drive to slash payroll and rein in risk has made investment bankers expendable as many banks realign their business around their more stable wealth management and private banking units.

Today, competition remains hot for advisors who can bring in a good portfolio of clients, James Fleming, head of international private banking at RBS unit Coutts & Co., told a Reuters Wealth Management Summit.

A "different animal"

That said, keep in mind that one-on-one advice-giving is an entirely "different animal" than working with institutions, observes Todd Rustman, president of GR Capital Asset Management, an independent wealth management firm in Newport Beach, Calif.

"You can work with institutional clients in perpetuity, whereas on the private client side, people are getting older," Rustman told eFinancialCareers.

The advisor, who is also a Certified Financial Planner (CFP) and Chartered Financial Analyst (CFA), observes that because of the aging population, it can be less profitable to service clients properly.

Safe havens vs. high performers

"Many are in the distribution stage, not in the accumulation stage of life," Rustman observes. More of them are also invading their principle due to low interest rates, and many are looking for safe havens for their money as opposed to higher performing asset classes.

Moreover, says the advisor, new "plain language" transparency requirements for advice givers that are fee-based are increasing competition in the business, since clients can easily find out who's charging what type of service fee.

For those who are willing to put up with all of these challenges, however, there are rewards. This is also a time when individuals are more and more in need of help with their investments, and when both wirehouses and independent advice givers seem intent on hiring.

"The war for talent is not quite the 100 years war but certainly 15 years," Fleming said at the Reuters Summit, referring to hiring at banks.

Takes 2.5 years to be productive

"The value of staff in our business is actually extremely high," Deutsche Bank global head of private wealth management Pierre de Weck told the Reuters gathering. "When we make a new hire, it takes 2.5 to three years for them to become productive. But the penalty for making the wrong pay decision in our business is very high."

It's also true that outside the wirehouse environment among Registered Investment Advisors and other independents, the market is ripe with opportunities for those just starting out in financial advice space-as well as those with a track record of more than five years, as eFinancialCareers recently reported.

Rustman himself is hoping to increase his small 10-person staff by 50 percent within the next 12 months, and he notes that whereas GR Capital's bread and butter business used to be those with under $5 million in net worth, today there are more and more accounts coming his way that are five times that size and more. "It's scary out there," he says. People are spooked about the future of Social Security, for instance, and they are less and less trustful of big banks like Bank of America whose names have been all over the headlines of late.

"The one thing that keeps me up at night is I don't want us to lose that family touch," says Rustman, who has worked on the institutional client side at PIMCO and was also a portfolio manager for Mellon between 1996 and 1999. "I don't ever want our clients to feel like a number."