Big banks can struggle when they’re trying to figure out a wealth management strategy that works for everyday retail investors.
Look no further than Goldman Sachs Group Inc.’s decision to dump the retail financial advisor business, Personal Financial Management, that it bought just four years ago. Goldman is returning to its roots and focusing on wealthy clients with tens of millions of dollars in assets.
Or take a gander at Citigroup Inc. It got rid of its prized Smith Barney franchise of financial advisors, selling it in 2009 for $13.5 billion to James Gorman and Morgan Stanley, where the percentage of the firm’s pretax profit from its wealth and investment management group is now above 50%.
This spring, Citigroup appeared to revise its strategy of running away from financial advisors when it hired Andy Sieg, the former head of Merrill Wealth Management, to lead the bank’s global wealth unit.
Who knows whether Sieg will succeed. What’s clear is that banks like Citigroup that serve a broad base of retail clients want to participate in the boom in the wealth management industry, which is extremely attractive from a corporate perspective due to the cash flow from the fees that financial advisors charge their clients.
Which brings us to the announcement this week that HSBC has hired a one-time rising star at Merrill Lynch, Racquel Oden, as head of wealth and personal banking in the United States for the British behemoth.
While Oden is highly regarded in the wealth management business, HSBC’s name “never comes up” in the industry, said one industry source who asked not to be identified.
At the end of 2017, Oden abruptly bolted from Merrill Lynch, where she was manager of its flagship 5th Avenue branch in Manhattan, landing at JPMorgan Chase, where she initially served as divisional director for the Northeast.
Now, Oden will oversee HSBC’s “wealth management, global private banking and retail businesses in the US,” according to a press release. She will join the bank in December.
A spokesperson for HSBC did not respond to an email seeking comment about Oden’s role at the bank.
An overarching problem that banks have with the financial advice business is the fundamental rule that clients belong to the house and not to the financial advisor. This flies in the face of the way financial at registered investment advisors and independent broker-dealers conduct their businesses. Financial advisors work with clients, not institutions.
Also, small banks have been off-loading their brokerage and wealth management businesses. Think of the line of wins that LPL Financial’s institutional business has landed over the past few years. Many banks don’t want to mess with retail brokers and financial advisors; although they can be profitable, they’re also expensive to run and may pose substantial risk and cost if products they sell go screwy.
Indeed, HSBC Holdings recently said it was significantly scaling back its retail bank operations, locations where HSBC bank-based financial advisors would have met clients. In 2021, the bank said it was “exiting” 90 of its 148 branches in the United States.
With all that said, one industry observer noted that Oden has an opportunity to build a franchise at HSBC.
“The narrative around banks being in wealth management makes a ton of sense,” said Louis Diamond, an industry recruiter. “Banks have affluent clients, and they may as well try to sell them wealth management services and keep those assets in-house rather than see clients go to Schwab or Fidelity.”
“The challenge is to scale up a business to size,” Diamond said. “And experienced advisors can be skeptical of banks.
“Because it’s based outside the U.S., HSBC has an opportunity to work with wealth clients like ex-patriots or wealthy foreign clients with interests here,” he added. “It’s clearly a potential opportunity but it will be an uphill battle to get quality people to come and join her there.”
Best of luck then to Oden in her new position. All bankers toiling in the financial advice side of the industry need it.