First the good news about the wealth management fever that's sweeping the U.S. banking industry: there are real opportunities for banks that can adapt quickly.
Technological advances, along with a growing base of customers who want greater control over their assets, are allowing retail banks to serve middle-income investors who don't generate enough fees to attract interest from private banks or trust companies.
Now the bad news: competition is fierce. Banks entering or ramping up in the business are competing not just with other banks, but also brokerage houses, mutual fund firms and scores of independent financial advisors. Moreover, there's not much new business out there, so banks' only real chance to gain meaningful market share is to poach other firms' customers.
"This is all about stealing share now. It's not about telling people to bring money from your mattress," says Wayne Cutler, who runs the wealth management practice at Novantas, a consulting firm.
Another reason to proceed with caution is the public's jaundiced view of the banking industry. U.S. banks scored among the least trusted business sectors in recent research from the public relations firm Edelman though financial advisors and asset managers did not score much higher.
Despite the hurdles, banks of all sizes are turning to wealth management because it provides a reliable source of fee income at a time when loan demand is weak, low interest rates are compressing margins and regulations are squeezing returns from other fee businesses.
If they can overcome the perception that banks are not just places to park cash until it is needed, then there's real opportunity to gain a larger share of customers' business. Only 3% to 5% of in the United States has one or more investment or wealth product with their bank, according to Novantas.
"You've got to give them a reason to give you more of their wallet," says Bryan Carson, a senior vice president at Huntington Bancshares (HBAN) in Columbus, Ohio.
Rather than courting the ultra-wealthy, many banks are focusing on the so-called mass-affluent often defined as customers with investable assets of $100,000 to $500,000 to $1 million.
A generation ago, banks wouldn't have been interested in providing wealth management services to many of these investors. Their accounts were simply not big enough to justify heavy expenditures on employees who held face-to-face meetings with their customers.
That's changed rather dramatically in recent years as consumers have become increasingly comfortable with making choices about their money online.
"I don't think you can go to a meeting without hearing a banker talking about the mass affluent," says Howard Hammond, president of the securities and investment arm of Fifth Third Bancorp (FITB).
Fifth Third is courting the mass affluent with its Preferred Banking Program. The one-stop program offers banking perks such as waived ATM fees and credit card rewards that the bank uses to try to convince consumers to move their investment portfolios to Fifth Third.
"Our main target clients are what we would call the advice-seekers and the validators," says Fifth Third's Hammond, referring to customers who don't want to relinquish control over their investment decisions, but do want varying levels of hand-holding.
The Cincinnati bank's program makes use of online and telephone channels, in addition to Fifth Third's branch network. "Our goal as an institution is really to try to make sure that, whatever your preferred method of communication is, we can adapt to that."
Of course, many of those who are most technologically adept are young and don't have as much money to invest as their parents do. High-income, digitally savvy investors in their 20s are far more distrustful of financial advisors than similar investors in the baby boom generation, according to a February survey from Accenture. The younger cohorts are also more likely to spend a lot of time doing their own research before making an investment decision.
"They're not sure whether advisors are really acting as they'd like, as a trusted financial advisor," says Alex Pigliucci, global managing director of Accenture Wealth and Asset Management Services.
Despite the fact that younger adults have fewer assets to invest than their parents, there will be a large transfer of assets between generations over the next couple of decades. If banks don't establish trust among young adults, "you may actually not be as relevant as they receive the assets," Pigliucci says.
It's not just young investors who want to take greater control over their own portfolios. There are more than 75 million digitally savvy, relatively high-income investors in the United States, and they have approximately $27 trillion in assets, according to Accenture.
More banks are starting to target those investors, and the adaptation is happening both in terms of the packages of products being offered and the way customers are able to manage their investments.
"There is product differentiation, but there is also service differentiation," says Michael White, a Pennsylvania-based wealth management researcher and consultant.
Other banks that are making big plays in wealth management include PNC Financial Services Group (PNC), which gets high marks from outside observers for its Virtual Wallet. That online product allows consumers to manage their short-term cash and their long-term investments in a combined way.
Large banks such as Wells Fargo (WFC), Bank of America (BAC) and JPMorgan Chase (JPM) are also embracing the opportunities in wealth management.
Though big banks are fighting image problems, one major advantage they have over their smaller peers is their ability to invest in compelling experiences online and on mobile devices. For example, B of A's Merrill Edge product offers a rich suite of technological features, including proprietary investment research, that smaller banks can't match.
That could explain why one large community bank eager to add a fee business has, after considerable thought, decided against expanding into wealth management. Its chief executive says that the field is so crowded that it is hard for a newcomer to have much impact.