For U.S. Trust President Keith Banks, the task of transforming one of the nation's most venerable private banks came with a large array of challenges. In 2008, when he took the helm of U.S. Trust, which serves high-net-worth and ultra-high-net-worth clients, he faced an acquisition-weary set of employees and clients. They had been taken over by Bank of America in late 2007 after having been acquired by Schwab not long before that. "In their minds, it was, 'Here we go again,' " Banks says.
The culture clash between the private banking businesses of the two organizations was deep. "We had everyone identifying themselves as either, 'Hi, I'm legacy U.S. Trust,' or 'I'm legacy Bank of America,' and the line was kind of drawn down the middle," Banks recalls.
But what hit next was an even bigger difficultythe worst financial crisis since the Depression. For U.S. Trust, an organization that dates back to before the Civil War, that meant coming up with a new plan.
Standing in front of about 100 students and faculty at the Rutgers Business School one evening in March to talk about the leadership lessons he has learned in his career, Banks sums up the situation. "We had a company that had too high a cost basis; the pretax margins were too low; and employee morale and client satisfaction were low," he says. "That particular year, we had a significant outflow of assets," as anxiety gripped investors. "[Because] 2008 was traumatic for everybody, 2009 really became, 'Embrace your employees. Embrace your clients. Live to fight another day.'"
The year 2009 also became a baseline for an ambitious three-year plan for U.S. Trust, which Banks says incorporated five years' worth of changes. This plan meant aggressively readjusting the goals of the firm's employees and recalibrating its services to meet the evolving needs of the families it serves.
More than three years later, Banks says there has been significant progress. "Our negative flows became significantly positive," he says. "We had margins which, when we started, were quite low. By the time the three-year period was up, they were two and a half times higher." What's more, he says, all of the staff members at the firm now identify themselves as U.S. Trust employees, regardless of how they came into the firm.
And those achievements, Banks says, have cleared the way for U.S. Trust's goal for its next three-year plan. It can be summed up in one wordgrowth.
Tearing Down and Rebuilding
Banks grew up in a middle-class New Jersey suburb and earned his bachelor's degree in economics from Rutgers in Newark. His speech is part of the business school's CEO lecture series. He has also donated to its economics department.
Banks, who earned an MBA in finance from Columbia Business School, started his career as an equity analyst. He worked at J.P. Morgan for 16 years; his job titles included global head of equity research and head of U.S. equity. From there, he went on to serve as chief executive officer and chief investment officer at FleetBoston Financial asset management.
Banks became an employee of Bank of America in 2004, when the firm acquired FleetBoston. At Bank of America, Banks has also been president of Global Wealth and Investment Management and president and chief investment officer of Columbia Management. Besides heading U.S. Trust, Banks also currently oversees Bank of America Global Capital Management.
For U.S. Trust, the rebuilding process began by developing a vision and creating appropriate incentives for employees. "What I set forth was, 'We again want to be the pre-eminent private bank in the United States,' " Banks says. "U.S. Trust for many, many years was that private bank. And then it lost its way somewhat, and then the acquisitions kind of derailed it. So we set that as a goal, and now we are on target to achieve it."
The first requirement was to persuade U.S. Trust's employees to follow the new vision, a step that Banks refers to as "communicate, communicate, communicate." Next, Banks created new metrics so that everyone knew the goals. Then, Banks says, he regularly met with the leaders reporting to him, which at the time included four divisions and 18 regions, to review where each ranked in terms of each goal.
"You never embarrass someone, but you create accountability," Banks says of dealing with those who were near the bottom of the list. "They were not getting it done, and there's nothing more motivating. Your boss is one thing. Your colleagues are something else."
As they worked toward those targets, Banks realized that some employees were being overcompensated even as the firm's overall performance lagged behind its goals. "We changed that, because money is a powerful motivator," Banks says. "We totally revamped the comp structure, and we basically got everything reconnected."
Recalibrating for the Real Economy
Banks says two members of his leadership team have played critical roles in supporting and executing the new strategy: Christopher Hyzy, who serves as managing director and chief investment officer; and Chris Heilmann, chief fiduciary executive.
Hyzy became chief investment officer in September 2007, after joining U.S. Trust about a year earlier from Citigroup, where he had served as the chief investment officer for the Latin American part of the private bank. Before that, Hyzy spent about 13 years at Merrill Lynch.
Hyzy describes bringing the resources of U.S. Trust and Bank of America and their 300 portfolio managers together under one roof, and merging best practices, as "quite exciting." During that transition, Hyzy first met Banks and found they had a lot in common.
"We would have discussions as to what really moves people's ability to put money to work, whether it's an ultra-high-net-worth client, a company, [or] a government," Hyzy says. "It comes down to trust and confidence in the system. And if trust and confidence in the system is starting to wane, that is a major red flag."
During those discussions, Hyzy says, Banks never lost sight of the opportunities that would eventually emerge when the markets recovered. For example, U.S. Trust adjusted its fixed-income business. Today, the firm's strategy emphasizes client goals, including access to cash, over some more typical benchmarks.
"We look across fixed income on a net after-tax basis," including the cash flows that a portfolio can produce, Hyzy says. "You can't do that if 70% of the benchmark says you should own government debt, agencies, and Treasuries. ... That was a major competitive advantage for us."
Another advantage is the emphasis that U.S. Trust has placed on major macroeconomic trendswhat it terms as "themes and demographics." Today, the firm is factoring in big defining trends that are expected to take hold in the next three to seven yearsparticularly the middle-class population that is poised to double in size in emerging-market economies. "Themes and demographics ultimately drive long-term risk-adjusted returns," Hyzy says. "And capital will always flow to the greatest risk-adjusted returns over time."
U.S. Trust is refining that strategy after focusing on what Hyzy calls the "real economy." That process includes regular visits to clients, including many who are business owners, to find out how the U.S. economy is really doing in providing access to capital and what they are seeing in specific markets, from residential real estate to natural gas.
Services for the Modern Family
For Heilmann, who came to U.S. Trust as chief fiduciary officer after Banks took control of the business in 2008, those kinds of conversations with clients and research led to a new emphasis on the families that U.S. Trust serves. Heilmann has spent his entire career in the trust and private banking area of financial firms. He served for 27 years at Fleet Financial in Boston until 1999, when he left to become chairman and CEO of Merrill Lynch's trust business. He was in that position when Bank of America announced its plans to acquire Merrill Lynch in 2008. Although Banks and Heilmann both served at Fleet, their tenures there did not overlap.
When Banks approached him about taking on the fiduciary role at U.S. Trust in 2008, Heilmann saw it as his dream job. The position was an opportunity to help run the trust business at the largest provider in the country, Heilmann says.
Heilmann felt he was uniquely suited for the post, he says, after having worked in Fleet's mergers and acquisitions group, where he would do the due diligence on prospective trust and investment business prospects and then manage their integration into the business once they were purchased. Heilmann also had years of experience working with regulators, which was another key component of helping to integrate the U.S. Trust business into Bank of America. "Keith gave me the absolute confidence that I would have a supportive executive, who was always looking for the next new strategic idea, and really was very, very open to say how should we be organized and how we could be looking at this business differently than it had been in the past," Heilmann says.
One new focus has been the next generation of investors. This was sparked by a broad study of wealthy individuals that the firm conducted in 2008. It found that 78% said they did not feel their children would responsibly handle the wealth that was to be passed on to them. And of these same respondents, 50% said they thought the wealth would be considered a burden, not a benefit.
In response, U.S. Trust developed a very specific curriculum for clients in their 20s and 30s. This includes lessons on financial basics like checking, credit, mortgages, and taxes. Then, the firm addresses such life-changing events such as getting engaged, marriage, prenuptial agreements, starting or losing a job, and buying a house. U.S. Trust's education also covers areas for protecting wealthlike insurance, estate planning and taxationand addresses philanthropy. Further lessons cover trusts and estates, as many of these clients may become beneficiaries of trusts, as well as starting and running businesses. These next generation services are free for clients, Heilmann says.
U.S. Trust has also developed a program focusing on elder care issues. And it has devised new strategies for women and LGBTlesbian, gay, bisexual and transgenderclients after seeing a need in those markets. Women control 50% to 60% of the wealth in the United States, while the divorce rate is as high as 50% in some states, Heilmann notes. And the LGBT community faces distinctive challenges for planning for their wealth, as federal and state governments recognize those unions unevenly. While the firm already had such clients, it was not servicing them in what Heilmann calls a "defined fashion."
"We sit down with clients and say, 'Yes, we're working with you. But as we work with you, we're also thinking about addressing the needs of your extended family,'" Heilmann says of the services. "Clients don't really think to expect that of us. They don't expect that we're going to have those types of services inside a private bank, but they're thrilled when we do."
Such efforts have helped to win new clients. When a couple who recently sold a company lined up back-to-back meetings in a New York hotel with five firms soliciting their business, the wife asked each team, "Who are you going to work with and how are you going to work with families?" After the couple and their two children, ages 19 and 22, became clients, the wife confided, "You were the only firm that we could tell wasn't making it up as you talked," Heilmann says.
Reaching Across Firm Businesses
When Bank of America acquired Merrill Lynch, critics speculated as to how well U.S. Trust would fit with Merrill, which has many high-net-worth clients of its own. Would the two compete with each other for clients?
In fact, the competition between the businesses has not been dramatic, according to Banks. "There's actually a very small percentage of overlap" between U.S. Trust and Merrill Lynch clients, Banks says. "It's like a low double digit [percentage], if that."
As the integration has progressed, U.S. Trust's private client advisors have teamed up with other parts of Bank of America, including Merrill Lynch, to leverage their strengths. Russell Goldstein and Nicholas Kolesar, U.S. Trust private client advisors based in Phoenix, say they have focused about 25% to 30% of their business into partnering with Merrill Lynch and other areas within the larger firm.
Those relationships can mean the difference between retaining or losing a long-time client to another firm. That was the case when Goldstein and Kolesar connected with Steven Prickett, a senior vice president at Merrill Lynch's Private Banking and Investment Group, who is based in Albuquerque, N.M. The advisors first connected at a meet-and-greet event for the U.S. Trust and Merrill Lynch's Private Banking and Investment Group, which also caters to the ultra-wealthy.
After that introduction, Prickett approached the U.S. Trust advisors about a client whose attorney was talking with another trust company. The woman had been a client of Prickett's for 20 years and had moved to Arizona to be closer to one of her two sons. But the client was in the early stages of dementia, and she needed to get into a trustee situation, where her bills and other affairs could be watched over. Because her sons did not always get along, her choice was to go with a third-party trustee.
Prickett contacted Goldstein and Kolesar, and they took on the client. Today, the client's financial activities, including issuing checks and estate planning, is handled by U.S. Trust, which now manages her money. Prickett stays involved with the conversations about his client, after having built a long-standing relationship with the family.
"We needed to know that the investment structure was going to work well," Prickett says. "She's fully into the throes of Alzheimer's now. She doesn't know people, but her affairs are in good shape."
For Goldstein and Kolesar, this is just one example of what they can add to existing relationships by using other parts of the Bank of America organization. For one client, a large medical practice with 100 doctors, the team will handle all of their requests for information on everything from car loans to mortgages. "They don't have to think. They can just say, 'Call Russ, call U.S. Trust, call this team," Goldstein says. "We are the ones that embody the entire breadth of banking and can get any answer for them."
Those capabilities for handling large complex clients have prompted Goldstein and Kolesar to urge Merrill Lynch advisors to use them as part of their team. "Our whole book is these types of clients," Kolesar says. "To be able to do the clients' tax returns in house, to be able to do their investment management and really work with their family and their extended family and usher in the next generation, that's really where we excel."