Private Banks Provide Niche

It could be said that private banking vs. regular banking is like the difference between a suite at Reynolds Razorback stadium and student seating: Everybody’s watching the same game, but some folks have a much more comfortable view.

With all the wealth in Northwest Arkansas, there are few banks that compete for the narrow niche of the somewhat to completely rich. Arvest Bank, Bank of America, Bank of Arkansas N.A., Bank of the Ozarks and First Security Bank are among the few that include in their offerings the “highly personal, high-touch” customer service — commonly called private banking. One of those, FSB, is a relative newcomer to the game, just starting to gear up its private client group this year.

And between those four banks, there is a giant gap between what is required for a passkey to the plush suite.

The Private Bank of Bank of America has a client limit of net worth in the $3 million range, while individuals and families in the $125,000 to $250,000 annual income range qualify for some level of personal service at one or more of the other three banks.

But they all say private banking in its various incarnations boils down to relationships that build business for the future.

“They come to us for everything, and that’s what we want,” said Xochitl (pronounced “sa-chi”) Baxter, senior vice president and area loan manager for private banking at Arvest Bank-Fayetteville. “When they need to buy a house, we’re going to do that. When they need a car, we’re going to do that. When they need to buy a business, we’re going to do that.”

Private America

“I’ve heard that one of our competitors says you can be a private bank client if you have a $100,000 cash deposit. That wouldn’t even qualify for the next tier down in our organization,” said Royce Reed, senior vice president of Bank of America’s private client office in Rogers. “Private banking for us typically deals with someone … who has a taxable estate,” or about $3 million.

That’s when Bank of America’s services start to make sense for a client, he said.

Because banks don’t divide their deposits or loans out by their private banking divisions, an area dollar value on the market would be a wild guess.

But Reed said the Rogers office has between 40 and 50 clients. At a minimum, that puts his clients’ net worth at $120 million.

Since Bank of America’s private bank office is more of a wealth-management office than a bank, it isn’t registered with the Federal Deposit Insurance Corp. as a stand-alone location. Bank of America only operates two locations in Benton County — one in Bentonville and one in Rogers. Together they have about $38.6 million in deposits, according to the FDIC’s June 30 numbers.

Bank of America, based in Charlotte, N.C., had total assets of $1.04 trillion as of June 30. Nationwide, Bank of America has only 150 private banking offices in 39 states, but it has about $165 billion in assets under management. Its private bank loan portfolio is $29.6 billion, and deposits are $27.5 billion.

Reed said his true competitors are the likes of Goldman Sachs, Wells Fargo private banking and Citigroup private banking, none of which are in the Northwest Arkansas market.

Bank of America’s private bank can work like a family office, Reed said. A family office usually becomes economically feasible when a family’s wealth reaches about $25 million, he said. An office is often created and staff hired to manage assets, deal with charitable gifts and build legacies.

“The niche that we provide is that in-between ground where their wealth is north of $5 million, but they’re not $25 million yet, so they need something to act like a multi-family office, and that’s what we do,” Reed said.

High Touch

The mantra repeated by every private banker is “service.” Instead of a customer going to the bank for a loan, the banker comes to the customer, and a phone call can move mountains.

As an example of Bank of America’s unique position with a nationwide infrastructure, Reed said one of his clients who has a second home in Naples, Fla., was very concerned about the effect of the recent hurricanes on the house.

“Within 24 hours of [Hurricane Katrina], I had somebody on the ground looking at that property,” he said.

Another private banker could eyeball and report back directly — a capability others in the market don’t have.

Reed said the sweat equity and the amount of time he spends on each client is also part of the high-end service. He will spend almost two months familiarizing himself with a prospective client’s finances before taking them on full time, he said.

Arvest Bank’s niche is slightly different. Catering to the working professional starting in the $150,000 annual income range, though Baxter said that wasn’t a hard and fast number.

By focusing on the client rather than products, Baxter said, the bank boosts customer satisfaction, which in turn increases its deposits and loans.

Arvest’s private banking department in Fayetteville has about 650 clients. Baxter personally deals with more than 100 clients, but ultimately wants to know all of Fayetteville’s private banking clients.

For her core demographic, Baxter said Arvest pursues professionals who value service.

“In other words, they’re not just going around shopping for a product,” she said. “They want a relationship. They value the service we give. They value the fact that we can make things convenient for them. It’s going to be someone who is busy. We have a lot of physicians, attorneys, corporate executives, university staff … We have a lot of business owners.

“We look for people with high income and high net worth because those are typically the people who fit into those categories … who are working a lot, and they don’t have a lot of time to take care of things,” Baxter said.

Cindy Tabor is the administrator and office manager of the Northwest Arkansas Neuroscience Institute in Fayetteville. Through the loan process to purchase her business two-and-a-half-years ago, she found herself talking to Arvest’s private banking department.

“I was introduced to Xochitl, and from that time on, I haven’t gone to the bank,” she said. “They’ve made it very personal.”

Tabor, who also owns rental properties, said she eventually moved all of her business to Arvest.

Stephen Gray, senior adviser for U.S. Rep. John Boozman, also sang the praises of Arvest private banking.

While he was selling a property in Maryland, he was given a point of contact within Arvest’s private bank. Over time, he began to realize he was dealing with the same person, Pam Benton, and had become a private client. Then he purchased three Fayetteville properties for investments.

“I never had to be in her office more than 10 minutes or so,” he said. “She’s been at every closing to ensure that everything goes well.

“It’s about relationships and convenience,” Gray said.

Jeff Dunn, president and CEO of Fayetteville-chartered Bank of Arkansas, defines his bank as a commercial bank and a private bank. With only two offices, Bank of Arkansas is backed by holding company BOK Financial Corp. of Tulsa with $17.9 billion in assets.

“You don’t have to have an extensive branch network with private banking,” Dunn said. “We go to the customer.”

One of the reasons so few banks offer private banking in Northwest Arkansas is because it can require deep pockets, Dunn said, and his organization has those.

Bank of Arkansas private clients need to have income of about $150,000 and assets of about $500,000, he said, but there’s no magic number.

Reed said the clients he deals with in Northwest Arkansas usually have “primary wealth,” which means they’ve created their wealth and it hasn’t been inherited.

“Primary wealth is a whole different business than second- and third-generation wealth. The wealth tends to be more concentrated in real estate or in a single stock,” he said.

“A lot of what we do here is around trying to protect concentrated stock positions.

“You’re not going to find hundreds of people that we work well for here in terms of what they need, but there’s plenty of folks here to keep us busy,” Reed said.

Head to Head

Ask a private banker about the business, and the first thing they’ll mention is customer service, immediately followed by a jargon-barbed list of wealth management related products and services. A larger portion of the customer service is helping that client grow their wealth, not just servicing it.

But it’s at the wealth management level that the difference between private banking and investment services from traditional “wire houses” like A.G. Edwards & Sons becomes blurred.

Reed describes Bank of America’s private bank as an “integrated suite” of investment management, customized credit and wealth transfer.

“You can go to a stock broker and you can get investment advice,” he said. “You can go to a traditional private banker and they can arrange credit for you. You can go trust shop and they can do fiduciary and wealth transfer for you. But I don’t think that there’s anyone who integrates all three of them at the same level we do and can do it without any geographic boundaries.”

Dunn said the real difference between private banks is in the product set. Bank of Arkansas has a bank infrastructure but also has fund managers on staff in Tulsa.

Reed said he can provide Bank of America-employed experts on everything from timber land management to trust services, from “Des Moines to New York.”

Arvest uses Raymond James Financial Services Inc. of St. Petersburg, Fla., to facilitate its clients’ investments.

“If you ask 20 different banks what wealth management means to them you’ll get 20 different answers,” said Lee Mackey, head of First Security Bank’s wealth management.

First Security Bank’s private client group is being born from the wealth management segment it has had for years, Mackey said.

Many area banks offer investment services, but not necessarily “private banking.”

Gary Head, chairman and CEO of Signature Bank of Arkansas in Fayetteville, said Signature will not develop a private bank, though he helped shape Arvest’s Fayetteville office. Like Arvest, Signature uses Raymond James.

Instead, Head’s aim is for customers to have one point of contact and feel like a private client.

“I’m big on personal contact,” he said.