The opening of City National Bank’s new office in Westlake Village epitomizes the growth of private banking in the greater Valley region. The office isn’t located in a branch and has neither ATMs nor tellers. The four private bankers spend about half their time meeting with clients in the office and the other half meeting at the businesses or homes of high net-worth individuals – a breed that is growing in numbers locally. Leo Hamill, regional manager who heads the office that opened in April, said the bank already had private bankers in Sherman Oaks and Montecito, but saw a need for some to serve Thousand Oaks, Agoura Hills and Westlake Village. “We had a 70-mile gap that had all the demographics for private banking – a lot of retired people, wealthy families, nonprofits and Amgen executives,” he said. “It was a logical place to plant some local folks from the private banking industry.” City National isn’t the only bank that’s increasing its private-banking footprint. In June, Boston Private Bank & Trust Co. sold two of its branches in Granada Hills and Burbank to HomeStreet Bank in Seattle. Financial terms of the deal were not disclosed. When the deal was announced HomeStreet Bank Chief Executive Mark Mason said the Granada Hills and Burbank branches were in “one of the most attractive markets in the United States.” “The median household income is much higher in the Los Angeles MSA (metropolitan statistical area) than in the U.S. as a whole. When you combine this with the large population, it makes this an attractive area to grow,” Mason said in an email to the Business Journal. The bank bought the branches because of their proximity to Kaiser Permanente facilities. HomeStreet has a special “affinity banking” program for Kaiser employees and retirees. As part of their employee benefits, the Kaiser customers can access a variety of personal banking accounts as well as home loan benefits that include discounts on closing costs, access to dedicated loan officers, and access to a class for first-time home buyers. Meanwhile George Schwartz, chief executive of Boston Private Banking Group, said that his company remains committed to the market. The two Valley branches came with Encino State Bank, which Boston Private acquired in 2004. The bank plans to expand private banking at its nearby offices in Beverly Hills, Santa Monica and Pasadena. Despite those upscale addresses, Schwartz noted that his bank targets both ends of the market – the high net-worth individuals and the low- to moderate-income customers who need extra hand-holding in financial matters. “When you hear the name Boston Private, you might think it’s Mayflower money, but that’s not the case,” he said. “We have a number of clients who are not high net-worth. It’s the high level of service that defines us as a private bank.” Hamill at City National said the Westlake Village office’s customers are a mix of second- and third-generation wealth that came from Beverly Hills, executives at biotech giant Amgen Inc., plus entrepreneurs, attorneys and accountants. What makes the market interesting for private banking is that the clients are still in wealth-generation mode, as opposed to places like Montecito or Carmel, where the idle rich congregate. “In Montecito, there’s very little industry, there’s not an appetite for wealth creation,” he said. “In the Westlake area, you have a tremendous appetite. … People are there to be in business, and there’s a lot of money in motion.” Michael Pagano, executive vice president of private client services at City National, said his typical client has a net worth of $10 million with about $5 million available for investment. “They are interested in advice and they have complexity in their financial affairs,” he said. “They need enough wealth so there’s complexity and choices or it’s a bit of overkill with our services.” ‘Advice, not product’ Private bankers’ main focus is providing counsel on wealth management, which can include stock and bond investments, trusts, insurance, charitable funding, credit and borrowing, plus the regular depository services of a retail bank. Hamill at City Bank said when a client first comes into his office, they usually have one top priority. If they are entrepreneurs, it may be borrowing to fuel business growth, or it may be passing the business to the next generation. Hamill noted that with the current low interest rates, even millionaires often find it’s advantageous to borrow rather than use their own money. “Wealth planning is the most important service because clients at this level have a lot of choices,” Hamill said. “It’s about advice, not product. We don’t want to be transactional.” Schwartz at Boston Private said the usual form of wealth management is a custom portfolio of stocks and bonds. But a private banker can offer access to alternative investments such as private equity funds, partnerships or real estate, often through third-party firms with expertise in these markets. The business model for private banking is based on fees for asset management that vary depending on the amount and complexity of the investments. Pagano at City National also noted that if the clients decide to borrow money, the bank makes money in the traditional format of charging interest. Big bank model While smaller institutions try to cultivate a one-on-one boutique feel for their private bankers, the big banks often take a team approach. Michael Mortensen is chief executive of UnionBanc Investment Services, a stock brokerage owned by MUFG Union Bank and headquartered in Glendale. His brokers work in teams with private bankers, trust officers and traditional bankers to provide services to high net-worth clients, which he defines as $250,000 or more in investment assets. “Once somebody has accumulated a fair amount of wealth, it comes with complexity. They want to grow it, protect it and securitize it for lending purposes,” he said. Mortensen’s operation has grown with the addition of several brokers earlier this year. He attributed the growth of the profession to the decline in recent decades of company-sponsored retirement plans. As professionals spend their working lives in multiple companies or even multiple careers, they are trying to self-fund and manage their 401(k) plans and feel they need help. “People are more interested in financial planning than ever before,” Mortensen said. “Individuals must be more self-reliant. Investing is more complex and the more wealth you have, the more complex it becomes. You need a solid financial partner.” In 2013, accounting firm PWC published a report on the private banking sector, finding that revenue increased 17 percent in 2013 compared to the previous year, but the industry was at an “inflection point” because of a loss of confidence in financial institutions caused by the Great Recession. “Consensus suggests that trust in the financial sector is absolutely essential,” the report stated. “Yet we seem to have reached a low-tide mark, a moment in time when … trust and reputation within the financial sector must be repaired.” For his part, Pagano said that City National’s reputation as the “bank of the stars” paved the way for expansion and the new Westlake Village office is “extraordinarily successful and running ahead of expectations.” Mortensen at Union Bank said the sector will progress by adding digital access to its traditional white-glove service. “Automated solutions will not replace financial advisors,” he said. “Clients need hand-holding during complex times. But they want transaction information and money transfers and access to their accounts online. That’s a trend that will continue for everybody.”
SPECIAL REPORT: Private Bankers Like the Valleys
