As many of us already know, The Gramm-Leach-Bliley Act, passed by the Senate in 1999, repealed part of the Glass-Steagall Act of 1933 and allows for commercial and investment banks to unite under one roof. To some, this was viewed as a detrimental decision; however, to us and many others across the country, this not only opened up competition among banks, securities companies and insurance companies but it was also a great business opportunity.
This act fostered the genesis and growth of my company, Firstrust Financial Resources. In 1999, myself and my partners, Dave Fleisher and Andrew McIlhenny, oversaw a division of a very large and oversaturated financial planning firm. When the act passed, we saw the opportunity to combine the personal service touch and feel a community bank offers with the comprehensive and intricate services a wealth management firm provides.
We quickly found that some community banks were receptive to the idea. The regional banks, however, wanted to build their own wealth management practices and imitate larger banks like Citigroup. The community banks did not have the resources, but still wanted to compete.
We partnered with a community bank in 2000 and built a wealth management company acting as a subsidiary for a public bank. After five years of partnership, we had accumulated about $700 million in assets under management with 20 representatives and another 20 employees operating in the Philadelphia area. We were surprised and encouraged at how we were able to capitalize on all the synergies that existed between community banking and wealth management. We were able to successfully market our products and services through the bank channel while building our client base. In a relatively short amount of time, we were managing a substantial estate planning, insurance and asset management company.
In 2004, our bank was acquired by a larger company. We put together an offer to buy the wealth management business back. Through the middle of 2006, we rebuilt the company independently until another opportunity to partner with a bank presented itself. In 2006, we decided to partner with Firstrust Bank, one of the region's oldest and largest community banks.
Today, the organization has about 20 advisors, 15 support staff and manages about $750 million. This model has provided us tremendous success for many reasons. While this is not the proper avenue for all wealth management companies, for some it can create a remarkable opportunity.
Advantages of a community bank
We felt that choosing to partner with a bank, and more specifically a community bank, offered our team and clients numerous advantages. The community bank offers hands-on service at a boutique level, which larger banks can't provide. Furthermore, many of the nation's megabanks are structured to place a priority on serving large corporations.
Wealth management firms can build on a community bank's local reputation and vice versa. And the fact that they do not have institutional exposure to subprime loans and did not need to take TARP money from the government provides investors and prospects peace of mind.
Marketing a wealth management firm's services through the banking channel and through the bank's client base is a major advantage to this model. Cross-selling synergies and joint marketing projects like golf outings, sporting events and holiday parties can also maximize referrals and increase the client base. About 25% to 30% of our new business each year originates from the banking arm.
When you are considering this model for growth, it is important to seek out a community bank with strong leadership, one that is well-capitalized, has an excellent reputation in the community and a lasting commitment to community involvement.
When looking to combine forces with a reputable community bank, begin by reaching out to small banks in your area and identify what they're doing in the wealth management space. At this point, most banks have had the opportunity to evaluate if wealth management can work in their institution. This is not a new trend; it has been developed over the last 10 years. Today, every board of directors has looked at and made a decision about adding a wealth management arm, but perhaps they decided not to because they couldn't find the right synergy with a local wealth management firm. There needs to be an inherent trust and chemistry.
How life insurance services fit in
Without a doubt, the last couple of years have been difficult for the industry as a whole. We have experienced the credit crisis, potential company insolvencies, massive layoffs and huge drops in investment portfolios.
Today, we all recognize that life insurance is viewed as a financial asset and has to be treated as one. Now more than ever, people are focused on defensive plays to protect their assets, and life insurance is the first line of defense for any family or individual investor.
We control the overall financial experience for every client by being involved with their banking, their asset management, their insurance and their estate planning, which makes a client a lasting client -- as each party will realize just how much they're invested in each other. It is important to work closely and have a good relationship with the bank in order to make this synergy last.
Successful integration
One of the greatest roadblocks we've faced is that the sales process in selling life insurance is long and can be very complex. It's hard to get bankers excited about the life insurance sales process. In general, bankers are very transactional and the life insurance process is much more involved and abstract.
With this model, a wealth management firm can act as a one-stop shop for clients. While some may scrutinize this approach, clients who desire an easy and clean experience value the service that is provided.
Adam Sherman, CFP, CLU, ChFC, MSFS, is president and CEO of Firstrust Financial Resources in Philadelphia, and has 23 years of experience in the financial services field. He is a member of the Society of Financial Service Professionals, National Association of Insurance and Financial Advisors, Financial Planning Association and Association of Advanced Life Underwriters. For more information, visit www.firstrustfinancialresources.com.
