Though Bank of New York Mellon Corp.'s wealth management revenue has slumped, the unit's head is touting its resilience and plotting an aggressive strategy through mergers and acquisitions.

The business' revenues fell 10%, to $189 million, as of June 30, from a year earlier. But wealthy clients are continuing to invest with BNY Mellon Wealth Management, which has reported net inflows for 14 consecutive quarters.

David Lamere, the chief executive of the unit, said the inflows show prove that clients like its consistent, nonflashy approach.

"We've remained pretty constant with what we've been trying do for clients, and that's been really well appreciated," Lamere said. "We've come through the financial crisis well."

This is relative, of course. Second-quarter assets under management and custody declined 16.4%, to $142 billion, from a year earlier. But, as Lemere pointed out, client retention remained strong; during the financial crisis, retention remained around 97% or 98%, about the same as before the crisis began.

Meanwhile, Lamere said, the recently completed integration of Bank of New York with Mellon Financial Corp., a merger that closed in July 2007, left the way clear for the wealth management business to focus on geographic growth. The unit operates in 15 of the top 25 U.S. wealth markets. It wants to use acquisitions to help expand over the next few years, Lamere said.

Inflated Valuations

"We're a pretty big believer in acquisitions as a way to grow your footprint," he said.

The business will be selective about making deals, though, Lamere said. He described the acquisition field as dotted with firms that are overestimating their value. "There are some attractive opportunities," he said, "but there are also some prospective sellers who are not being realistic."

The value of mergers and acquisitions in the global asset management business rose about 7% in the third quarter from a year earlier as banking companies shed their fund units, according to a report by Jefferies & Co. Inc. The sector's disclosed deal value in the quarter rose to $4.5 billion, from $4.2 billion the year earlier.

Despite this trend and Lemere's enthusiasm for M&As, analysts say that merger and acquisition activity has been hampered somewhat by smaller firms that are reluctant to sell. "Why sell when assets under management are half the levels they were a year back?" said Karamvir Gosal, a managing director in Jefferies' financial institutions group. "That's the general problem besetting the industry."

Many boutiques have no pressing reason to sell and can bide their time, he said. "If small firms are still turning profits and have no immediate need for raising cash, they're just going to sit on the sidelines," Gosal said.

Lamere said he would like to see his unit's sales force nearly double, to around 200 people, within three to four years. The wealth management sales force when the two banking companies combined was about 70, and it should be 115 by the end of this year, he said.

The wealth unit is also fine-tuning its asset allocation approach, Lamere said. The goal is to give clients a chance to unlock more "hidden value" in the market. Thus, rather than entering the market with a traditional equity-to-fixed income split of 60%-40%, clients might be encouraged to enter with 62% or 63% in stocks, if the market outlook warrants it, he said. The business remains committed to strategic asset allocation, as opposed to a tactical approach over the long term, but "we're trying to make it a little bit more dynamic," Lamere said.

Confidence Up Among Millionaires

Meanwhile, news emerged last week that confidence among millionaires and affluent investors rose considerably in September, according to Spectrem Group.

The Chicago research company said its Spectrem Millionaire Investor Confidence Index rose five points in September, to negative-five, posting its third consecutive monthly gain. However, the advance, after a six-point increase in August, still kept the index in neutral territory for a second consecutive month.

The Spectrem Affluent Investor Confidence Index rose five points in September, to negative-13. Despite this third straight advance, the affluent index remained in "mildly bearish" territory.

"These advances suggest a slow but steady improvement in the confidence of America's wealthiest investors," said George H. Walper, Jr., Spectrem's president.

In response to an open-ended question about the most serious threat to achieving their financial goals, affluent investors in September cited: the economy (24%); the political climate (16%); unemployment (12%); market conditions (10%); inflation (5%); and health-related issues (4%).

Those citing the economy rose from 22% in June, the last time this question was asked, while those citing the political climate fell from 22%.

Millionaires were slightly less worried about the economy (22%) than the affluent but expressed equal concern about the political climate (16%).

The affluent index is based on 250 monthly interviews with the financial decision-makers in households with $500,000 or more of investable assets. The millionaire index is based on a subset of the overall survey group.


(c) 2009 Money Management Executive and SourceMedia, Inc. All Rights Reserved.

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