Consumer Finance International Retail Banking Wealth Management LoBue Technology				Private Banking... NON-BANK COMPETITION CONTINUES TO ERODE BANK TRUST MARKETSHARE In recent years, banks have watched their share of the U.S. trust market drop alarmingly. Since 1990, banks have lost more than half of the 65% market share they once enjoyed. As wealth in the U.S. continues to grow, banks' share of the trust market continues to diminish. And things are not getting any easier for banks - the number of non-bank trust service providers is booming and affluent house-holds are enjoying a relative "buyer's market" for asset management services. Historically competing principally against other depository institutions, banks now find themselves up against a tough, new breed of trust organization: a non-bank with a thrift charter. This new type of trust organization aims to better satisfy trust customers by providing a wider array of investment products and delivery channels. To add to the challenge, banks are dealing with more sophisticated customers who are growing increasingly investment savvy and demanding of their financial services providers. This leaves banks in a do-or-die position: in order to retain their trust customers and acquire new ones, banks must begin to refine their trust businesses and offer services with a more modern approach. The recent decline in banks' market share of the trust business can be attributed to various factors. Besides the entrance of new players to the trust game, banks' traditional weakness in asset management, the slow development of new investment products, and non sales-oriented personnel are also contributing factors. Allan Morehead, a LoBue Associates principal and the Director of LoBue's Private Banking Group, believes that the issue of increasing competition in the trust industry is likely to grow more intense; however, banks can compete more effectively with improvements in asset management services, investment products, and relationship management. "Because of the Glass-Steagall Act, which prohibited banks from underwriting securities, banks have very little experience in managing the large assets of wealthy clients beyond traditional trust and fiduciary services," suggests Morehead. "The investment-savvy, high net worth customers of today are more familiar than ever with a wide range of investment channels that they demand be a part of the services offered by their financial institutions." Because banks are not traditionally asset managers by trade, their customers have turned to investment banks and brokerages with thrift charters to manage increasing shares of their wealth. These organizations can offer customers a more one-stop shopping approach to investing: they provide not only trust services, but a full array of investments and asset management styles to meet the demands of today's high net worth and emerging affluent markets. Banks have been moving in the right direction to remedy this situation. An increasing number of banks are acquiring securities brokerages to obtain the same capabilities as their new competitors. However, this is just now developing into a core piece of their business. Banks still need to refine their distribution channels and operations to take advantage of and profit from this new capability. Another major challenge that banks must face is the historical focus of their trust personnel. Trust officers of banks have not traditionally been sales-oriented. While an effective sales force will help bring in new trust clients to banks, it will also help generate additional revenue from a bank's existing client base by increasing the number of investment products and services that those clients use. "It is up to banks to build and equip their sales forces to effectively compete for the additional assets of wealthy customers," says Morehead. "Not only will this generate more revenue for banks, but it will also help establish the sense of one-stop shopping convenience that makes customers return to do additional business." In order to remain a major force in the U.S. trust market, banks need to address the issues that caused the diminishment in the first place. Slow innovation of new investment products, general inexperience in asset management, and the non sales-oriented perspective of trust officers are responsible for turning market share over to new, non-bank trust institutions with thrift charters. By providing a large, diverse group of products through a variety of distribution channels, banks can offer an array of investment products that are tailored to customers' needs. "Achieving satisfaction of today's market-savvy consumers by providing a more competitive approach to their investment needs," concludes Morehead, "can help banks recover lost ground in pursuing the large, high revenue-generating assets of wealthy Americans." return
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