November 10, 2011

Wells Fargo’s New HNW Brand Could Make Sense, Expert Says

Consultant Chip Roame believes the bank-focused model could serve a limited number of wealthy individuals, families and businesses

Wells Fargo’s plans to introduce a new branded private-wealth boutique in April 2012--to be known as Abbot Downing--may hit the mark in a fairly limited market segment, an industry consultant said Tuesday, though it also could represent more internal competition for wealthy clients.

Chip Roame“Wells Fargo Advisors will compete for these same ultra-high-net-worth households,” as the new Abbot Downing staff, said Chip Roame (left), head of Tiburon Strategic Advisors, in an interview with AdvisorOne. “But in reality, some households prefer a bank model. The same is true of Wells’ traditional private-banking business. These [Wells’] operations really always have competed, so that’s nothing new.”

Wells announced Monday that it planned to launch Abbot Downing next April to serve individuals and families with $50 million or more in assets, as well as their foundations and endowments. The new entity will be a combination of Wells Fargo Family Wealth and Lowry Hill. It will be led by James Steiner, include about $27.5 billion in client assets and 575 client households, and have roughly 300 employees.

There is some opportunity for Wells in this segment, Roame says. “I think the crux here is that small- and medium-size business owners and real-estate developers do need credit, which drives them to a bank- lending relationship more so than a broker relationship,” he said.

Abbot Downing, named for a 19th-century New Hampshire builder of the stagecoaches that have come to represent Wells Fargo (WFC), will be part of the bank’s Wealth, Brokerage and Retirement group, now led by David Carroll. The unit, which completed the sale of H.D. Vest Financial Services business on Oct. 3, now has 15,188 financial advisors and 3,590 licensed bankers–or a total of 18,778 licensed wealth professionals.

“We pride ourselves on the values on which Abbot Downing was founded and will use the name to reflect the tailored solutions, high-touch service and attention to detail our clients expect,” Steiner said in a press release. “With the strength of Wells Fargo, our team of highly specialized professionals delivers a full suite of services to address the financial, social and human dimensions of multi-generational wealth.”

Its operations aim to target the roughly 10,000 households in the U.S. that have $50 million or more in investable assets and collectively control more than $1 trillion, Wells Fargo says.

“Ultra-high-net-worth households are few in number,” said Roame. “Every firm wants to attract them.”

Given the limited size of the segment, “I'd expect consolidation [in this financial-industry groups serving it] in 2012, followed by targeted growth,” the consultant added. “But again, the market is small, so adding a couple of hundred clients would be a big success. We’re not talking about thousands of clients coming on board.”

According to Wells Fargo, family businesses often need help when selling their operations, and Abbot Downing can partner with Wells Fargo Securities to provide access to private equity firms and other qualified buyers.

U.S. middle-market M&A deal activity was up 30% in the first half of 2011 vs. the same year-ago period, notes Thomson Financial, and privately held firms represented close to 60% these deals.

“By helping clients access the financial strength and tremendous breadth of capabilities across Wells Fargo, we have a significant opportunity to grow in this market,” said Carroll in a statement. “Whether the client needs merger and acquisition services, insurance, or commercial banking, we can integrate our services across Wells Fargo and ultimately provide a better client experience.”

These Wells Fargo operations now serve clients through offices in San Francisco, Los Angeles, Scottsdale, Denver, Houston, Minneapolis, Chicago, Philadelphia, Charlotte, N.C., Winston-Salem, N.C., Raleigh, N.C., Naples, Fla., Jacksonville, Fla., Washington, D.C., and Palm Beach, Fla.

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