FSB Dives into Wealth Management Services

Principals at Searcy-based First Security Bank have been building a wealth management division for about a year, but they’ve been hush-hush about its details until now.

Lee Mackey, head of FSB’s Wealth Management Group, wanted to make sure he had everything in place and at least a skeleton infrastructure running before he talked much about its offerings.

“We wanted to have our feet wet,” he said, “not just have our toes in the water.”

Since the division’s official launch in December, it has picked up between 30 and 40 clients statewide and has between $15 million and $25 million in assets under management.

So far, the bank has hired two wealth strategists, one in central Arkansas and Sam Scott, a certified public accountant, certified financial planner and former business development officer at Greenwood & Associates Inc. in Fayetteville. Scott offices out of the bank’s Pinnacle Hills branch in Rogers.

“We’re on track with where we want to be,” Mackey said.

FSB has agreements with two third-party providers — Placemark Investments Inc. of Dallas and Intrust Bank NA of Wichita, Kan. — and recently reached an agreement with Accessor Capital Management & Accessor Funds Inc. of Seattle Wash., to provide clients with a customized mutual fund product.

Reynie Rutledge, chairman and CEO of First Security Bancorp, the holding company for the bank, hired Mackey in February 2005 to build the division for FSB.

Mackey, former managing director and general counsel for PowellJohnson Private Asset Management in Nashville, Tenn., said FSB’s new group will work in concert with the holding company’s wholly-owned affiliate Crews & Associates of Little Rock, a non-bank broker dealer.

Crews & Associates is primarily a fixed income broker investing heavily in municipal, corporate, U.S. government and agency bonds. At the end of 2004, Crews’ net worth was $17.77 million.

FSB’s Wealth Management Group is fee-based and intends to help clients grow assets by increasing equity and supplying a variety of options not tied to specific mutual funds or branded products. This will allow the group’s wealth strategists to provide objective advice, Mackey said.

Although Crews & Associates employees often office inside FSB branches, technically fees generated from that business are not paid directly into the bank.

But the Wealth Management Group and Crews & Associates will have a good working relationship Mackey said, with each referring business to the other to best meet a client’s needs.

The service that some liken to private banking is “affordable.” Clients with as little as $100,000 can get “diversified portfolios of separate account managers” and mutual funds within one account.

“Our ideal client would have investable assets of $150,000 to $200,000 and up,” Mackey said.

Advertised fees for the group run 2.25 percent of a client’s managed assets annually for accounts valued between $100,000 to $250,000. Fees then gradually step down to 1.75 percent annually for accounts with assets over $2 million.

Trendy Timing

“The market is headed like a freight train for wealth management,” Mackey said when asked why the bank was taking a plunge into that segment of the market.

The trend for wealth management service offerings by traditional wire houses, banks and even accounting firms has been budding for the last several years as the baby boom generation approaches retirement and regulations allow freer exchange of offerings.

Theoretically, the boomers will be looking for front pocket folding cash, or liquidity, in case a lakeside home or a tricked-out motorbike catches their fancy. But they’ll still be expecting to grow their personal assets.

According to research compiled by Merrill Lynch and Capgemini, an international consulting group, there were about 7.7 million high net worth individuals in the world at the end of 2003, up about 7.5 percent from a year prior. The combined wealth of those individuals was estimated to be worth $28.8 trillion, and the report speculated that that wealth would grow to more than $40 trillion by the end of 2008.

So, clearly there is money to be made helping individuals manage and grow their assets.

Mackey and Rutledge believe FSB is positioned to pull from its existing base of customers at its 54 branches across the state as well as attract new clients as the bank continues to grow.

“It really is a further development of an overall financial solution for customers,” Rutledge said.

Potential clients will be people too busy to make day-to-day detailed decisions about their accounts and people who find themselves coming into a great deal of money at one time, Rutledge said.

Mackey said a potential Northwest Arkansas target client will be the retiring public company executive who may have saved-up stock options and be looking to diversify their wealth.

Wealth Works

First Security Bancorp is the parent company to First Security Bank, which is chartered in Searcy and operates the Northwest Arkansas division, as well as First Security Bank of Mountain Home and First Security Bank of Conway.

The holding company had total deposits of $1.71 billion at year-end, up 7.5 percent from the previous year. And the corporation’s assets were $1.96 billion, up 6.5 percent from 2004’s number.

Mackey said FSB struck an agreement with Placemark Investments in mid-2005 and with Intrust in late 2005.

Placemark will work with FSB’s wealth strategists to customize a portfolio of unified managed accounts for each client with “Overlay Portfolio Management.”

According to Placemark’s Web site, OPM coordinates the trading activity of separate account managers and other products while considering customization requirements for risk, tax and restrictions as specified by each client.

Placemark has investment managers with expertise in large-cap, mid-cap, small-cap, international and fixed-income segments.

“Cap” refers to a public company’s market capitalization, or total dollar value of all outstanding shares. A large-cap company like Wal-Mart Stores Inc. usually has market capitalization of $5 billion or more.

Placemark had $2.04 billion in managed assets with 3,826 accounts as of February 2005, according to the Securities and Exchange Commission.

Intrust Bank will manage 401(k) and retirement products for FSB, and the group has a pending deal with Accessor Capital Management to provide a customized mutual fund wrap program consisting of some of the top institutional money managers in the country, Mackey said.

Intrust Bank had $3.07 billion in assets as of Dec. 31, up 13 percent from a year prior.

Click here for a look at the advertised fees for FSB’s asset management program.