New models for wealth management: South Florida has long been a center for private wealth management, catering to the abundance of affluent families that own homes here. Now a new generation of wealth is being created, and a new array of managers is ready to protect and grow these fortunes—with whatever tools they need

South Florida CEO, April, 2004 by Mike Seemuth, J.P. Faber

In the late 1990s "there was this sense that money could be made hand over fist without much thought," says Carlos Torre, sales manager of Merrill Lynch's Coral Gables office. "There was a question as to whether you needed an advisor." Now he and other wealth managers work day and night to leave no such question in the minds of their richest clients.

Despite the lush trappings of the job, managing money for wealthy people became a relatively thankless job in 2001 and 2002, as the stock market folded under the weight of a weak economy, corporate scandals and terrorism fears. While an improved stock market in 2003 went a long way toward soothing things, clients have become increasingly sensitive not only to the returns on their investments, but to the entire mission of money management.

"There is a huge level of anxiety among all investors," says Doug Regan, who heads up Florida for private bank Northern Trust. "This is an acute reaction to the general market downturn we've experienced in the last three years. There is a whole new interest in risk management. What investors are looking for now is preservation of capital and growth over time. That was inverted four years ago."

Indeed, wealth managers who stressed capital preservation and investment diversification seemed almost passe four years ago, when the stock market bubble was still expanding. Now, common-sense investing has made a comeback among wealthy clients who were led astray by dot-com disasters and other types of stocks that promised more than they delivered, say bankers and brokers.

While many investors still long for the golden days of rich double-digit returns, there is a new sense of conservatism born from the sobering slide of the markets in 2001 and 2002. Instead of growing their portfolios by double digits, the rich got a little poorer during the stock market downswing. High-net-worth individuals in North America with $1 million or more of financial assets saw their net worth drop an average of 2.1 percent in 2002, a survey by Cap Gemini Ernest & Young and Merrill Lynch found. The population of wealthy people declined, too. The number of North Americans with $1 million or more to invest fell 1.9 percent to 2.2 million.

The result has been an increasing concern for risk management, which has rippled through the private banking industry in a variety of ways, impacting the traditional relationship between banker and client, and opening the industry up to new models of wealth management.

To be sure, limousine pickups, private party invitations, polo tournaments and other perks that banks and brokerages lavish on the rich have not been abandoned, nor has the often close personal relationship between banker and client. "I have clients over to my house for dinner regularly," says Torre, who works as part of a team of three on his own account load while overseeing sales in Coral Gables. "It kind of blurs the lines between your work and your social life."

Not uncommon is the high-end community relations approach taken by the local wealth management unit of Deutsche Bank, a frequent sponsor of economic seminars, golf and polo tournaments, and events showcasing music and art. Northern Trust has traditionally added to that mix with literary and cultural events. Its Prologue and Literary societies regularly host guest speakers who range from writers and scientists to historians and explorers; last month Northern Trust took a group of select Florida clients for a train tour of California wineries.

Nonetheless, the wealthy are becoming far more concerned about the protection of, and return on, their capital than they are about the warmth of their bankers and brokers. A feel-good event can create only so much goodwill, and no matter how many extras are tossed their way, few wealthy clients are rich enough to tolerate sloppy execution of serious stuff like tax advice, investment support, trust services and financial planning.

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"Client entertainment is something that is important to us," says Anne Alexander, an executive vice president for Wachovia in Jacksonville, who serves as the big bank's wealth management director for the entire Sunshine State. "But I think we differentiate ourselves in our ability to execute."

The nature of that ability has come down to two significant trends: diversity as a method to spread risk, and the use of outside products and services to increase that diversity.

Diversification is a rediscovered mantra among investors burned by "hot" stocks, particularly in the over-hyped high-tech sector. Some wealth managers in South Florida say they have guided stock investors to alternative investments, such as hedge funds and real estate investment trusts, for example.

And private bankers aren't shy about stretching their corporate brands to cover certain specially services provided by third parties.

"Clients have come to understand that true risk management comes from diversity, not only of asset classes, but also of investment thinking," notes Regan of Northern Trust, which has created an "open" model in which its private bankers frequently access outside products and money managers for their clients.