US Regional Banks Find The Sweet Spot

New tools and partnerships are expanding what regional banks can offer, and they still shine for local expertise.

The next 25 years will witness a wealth transfer of about $68 trillion, as aging parents leave assets to charities and their heirs, according to a recent report by Cerulli Associates, a research firm specializing in global asset management and distribution analytics. In addition, many baby-boomer business owners will be retiring and looking to transition their companies. Indeed, one in three boomer-owned businesses is expected to change hands by 2023, according to a recent survey by SunTrust.

These shifts are good news for the private-banking market. “It’s a growing market with a lot of promise because of the generational wealth transfer,” says Will Callender, partner in the Financial Institutions Practice with A.T. Kearney. For banks, investment management and financial-planning services can offer attractive income streams.

That includes many US regional banks. Minneapolis-based U.S. Bank recently reported a 9.4% year-on-year uptick in loan growth in this space, says David Mook, senior vice president and Private Banking product head with U.S. Bank Wealth Management, adding that the bank is “bullish on private banking specifically, and wealth management generally.”

Over the past few years, U.S. Bank has rolled out a new sales and service model, pairing bankers and financial advisers to offer a full suite of products and services to its clients. The bank also is investing in a lending portal to streamline the application process for loans secured by liquid assets.

This portal supports U.S. Bank’s strategy of partnering with some wealth advisory providers that are unable to offer banking services on their own. “Strategically, we’re reaching out to those firms to provide private-banking services to expand their value proposition to their clients,” Mook says. An affiliate, U.S. Bancorp Investments, also rolled out an online automated investment offering in the past two years.

Impact of Technology

While the private-banking market shows great promise, banks that want to capture it need to understand how it’s changing. Technology is one driver. Regional banks “need to figure out their digital angle,” Callender says.

It would be a mistake to assume that digital tools are of interest only on the mass-market, consumer side of the business. Given the growth of online commerce, many private-banking clients are likely to find the convenience of digital channels appealing, whether to check their accounts or research potential investments.

Some private-banking clients also appreciate the cost-effectiveness of online tools. “All clients are becoming more educated on what the cost of financial advice should be,” Callender says. Online tools can help regional banks efficiently serve the private-banking market.

“We’re listening to our clients, and we’re working to understand how they want to accomplish things as we increase our investment in digital capabilities,” Mook says. As a result, U.S. Bank is providing multiple ways for customers to interact with it, including in-person, by phone or videoconference, or through digital channels.

Technology offers another benefit. “These technological advancements and investments free up our advisers and bankers to really focus on the meaningful discussions related to a client’s financial plan, versus spending time on more-transactional activity,” Mook says.

At the same time, cybersecurity remains a challenge, says Arthur Coren, a partner with the law firm Duane Morris LLP. All banks need to continually invest to stay ahead of would-be criminals.

Even as technology shifts the private-banking market to a more mass-market model, many clients appreciate personal service. Here, regional banks may have an edge. That’s especially true for those that started as community banks, providing personalized service to small-business owners. Some of those business owners likely now lead significant enterprises.

As their customers grew, so did many of the banks, making the jump from community to regional bank, says S. Alan Rosen, also a partner with Duane Morris. When these business owners consider transition plans, they’re likely to look at their banking partners for wealth management services.

With many regional banks now sufficiently large and well-networked to offer a full range of sophisticated products—and, at the same time, local enough to provide personalized, high-touch customer service—regionals can hit the sweet spot in the private-banking market.