ABA Bank Journal - March 2007 - (Page 39a)
TRUST/WEALTH MANAGEMENT DIGITAL EDITION BONUS FEATURE Washington Trust ld dogs—smart old dogs—can learn new tricks. Nearly two centuries after getting into the trust business, Washington Trust Co. decided to aggressively build a wealth management unit on the foundation of its venerable trust department. As described in the accompanying article “Wealth management, worth a second look? , the decision has paid off handsomely. The company’s yearend ROAE was 14.06%, and the wealth management business overall is generating significant noninterest income, representing 40.7% of total revenues in 2006. Although that percentage was skewed up a bit by a recent acquisition, ultimately a 50/50 split between banking and wealth management is the company’s goal. Why the shift? The answer is partly geographical. The 207-year old community bank, headquartered in Westerly, R.I., has found that net interest margins are thinner, on average, and being squeezed more in the New England region than nationally. The bank’s yearend NIM was 2.74%. In addition, the $2 billion, publicly traded Washington Trust Bancorp has traditionally operated in southwestern Rhode Island and in the adjoining communities of southeastern Connecticut. By Bill Streeter, editor-in-chief Management felt the time had come to “move north” to Providence, the state’s capital and major population center, and to the adjoining areas of Massachusetts, and it felt that the expansion should be focused on wealth management, not retail banking or lending. John Warren, chairman and CEO of the bank and holding company, and John “Jack” Treanor, president and chief operating officer of both units, felt that a significant move into wealth management would produce a more balanced revenue stream, and higher price/earnings multiples than traditional banking, according to Galan Daukas, executive vice-president, wealth management. “A dollar earned in wealth management is worth more than a dollar earned in traditional banking,” says Daukas, who joined the bank in 2005. This reflects the higher p/e multiples earned by asset-management companies compared with banking companies—typically 19x versus 14x, he explains. On top of that, the wealth management business is growing faster. investment boutique, based in Providence. Founded in 1988 by two former Fleet Financial investment managers, Phoenix had built a following among high-net-worth clients and in the nonprofit market. Its managers, says Daukas, were looking to monetize their investment, but wanted to keep working. Washington Trust told them it would let them keep doing what they were doing, helping out with compliance and lowering expenses a bit. The acquisition, says Daukas, almost doubled the bank’s assets under management to $2 billion it’s now up to about $4 billion . Three years later, the company added another piece to its wealth management unit. It acquired Weston Financial Group of Wellesley, Mass. Weston is a fee-based financial planning service that does a lot of corporate-sponsored business, and also works with business owners. The Weston business is profitable in its own right, says Daukas, but the great thing about the acquisition is that after the planners go through a detailed analysis of a person’s needs, resources, and goals, they can say, “We can execute the plan for you.” Because Phoenix Investment Management now called Washington Trust Investors , uses third-party asset managers—i.e., “open architecture”—a high percentage of clients will ask the company to execute the investment management plan Why Two acquisitions make the difference Building such a business from scratch, however, is difficult, so Warren and Treanor kept an eye out for a profitable investment business to acquire. In 2002 they found an ideal candidate in Phoenix Investment Management, an 39a MARCH 2007 /ABA BANKING JOURNAL www.ababj.com/subscribe.html
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