It was a secret for more than a year, but now it's out: Fifth Third Bank has launched an independent wealth advisory firm, entering the scrum of financial institutions jostling for mainstream affluent and high net worth customers.
The 15th-largest U.S. bank will use its recently created Fifth Third Wealth Advisors to offer existing and new clients access to investment products and services alongside existing lending, trust, private banking and financial planning services. While the Cincinnati-based bank created the investment advisory firm in January 2021, it's only now unveiling it after hiring 12 advisors since last November.
With roughly $206 billion in assets, Fifth Third is undertaking what banks of all sizes from coast to coast are doing: mining existing retail and commercial customers of bread-and-butter banking products for broader wealth management services.
"It's never too late in the game for a bank to be getting into this business," said Arthur Osman, a principal at Kehrer Bielan Research & Consulting, an advisory firm to financial institutions. "They have an inherent existing opportunity with their existing customer base to provide these services and to be of value.
Rankings compiled through FP's annual RIA Leaders study show how the largest firms are growing at a record clip in offices across the country.
Last year, Fifth Third established advisor teams in Naples, Florida; Springfield, Illinois; Atlanta; San Francisco; Fresno, California; and Reno, Nevada.
"We just made the strategic decision to not do this public announcement until we had three or four teams on," Eric Housman, the advisory firm's president, said in an interview.
The new unit is a registered investment advisory firm, which charges fees for assets under management and operates according to the fiduciary standard, the highest level of client care. Fifth Third has roughly 1,100 retail branches in Ohio, Florida, Georgia, Kentucky, Illinois, Indiana, Michigan, North Carolina, Tennessee and West Virginia.
Housman said that "we would like to add four to six advisors per year, probably for the next two or three years. We ultimately want to build a $10 billion AUM business."
In a
The independent advisory firm stands alongside the bank's existing broker-dealer division, Fifth Third Securities, a combined brokerage and registered investment advisor.
Banks scrambling
Commercial banks, even those with private banking divisions, have fallen short when it comes to wealth management, with customers generally using other firms for their investments. That's a missed opportunity, as nearly $73 trillion in U.S. assets will shift to heirs by 2045 under the "Great Wealth Transfer,"
Banks are seeking to grow their recurring fee businesses and deepen existing customer relationships by managing more money for retail and commercial clients. Many institutions have chosen to buy existing billion-dollar RIAs instead of building their own — in recent years, Rhode Island-based Citizens Financial Group
Others are cherry-picking advisors with big books of business:
Rankings compiled through FP's annual RIA Leaders study show how the largest firms are growing at a record clip in offices across the country.
Commercial banks have a built-in advantage over stand-alone RIAs in that they can offer mortgage, securities lending and cash management services from the get-go. While half of all wirehouse advisors offer banking services, only 7% of RIAs do so,
Registered investment advisory firms, like the one Fifth Third launched, are the fastest-growing sector of the roughly
The typical advisory firm had an operating profit margin, or profits after wages and other costs but before tax and interest expenses, of nearly 31% last year, and top-performing firms have margins of over 47%,
The
Fifth Third's move comes as the battered stock market and economic uncertainty lower profits at independent advisory firms. RIAs operate on a fee-only basis, charging clients a percentage, typically around 1%, of their assets. Stock and fund prices are down more than 22% so far this year.
Building, not buying, is cheaper
The question for banks is whether they buy an existing practice and fold it into their operations, or start one on their own. While deal-making for independent advisor practices has been on a tear for a decade, Fifth Third chose the latter strategy. Despite a slight drop-off in the volume of wealth management transactions from an all-time high in the fourth quarter of last year, the industry is on track to set a record for the 10th straight year,
As wealth management firms and advisors increasingly wear two hats, it's getting harder for investors to know when they're overpaying for products and advice.
Housman said Fifth Third chose to start "from a blank piece of paper" due to the high prices that independent advisory firms are commanding.
"If you look at the multiples out there, you could be looking at upwards of $100 million of capital outlay to buy, and in our mind, we feel that there is enough talent inside of other bank wealth management shops," he said. "There are people in the second half or last third of their careers. They don't really want to go from one private bank to another. They don't want to go hang their own shingle. So we take our way less expensively. We can go out and build that sort of book without that sort of capital outlay." There's another benefit: A wealth management business "has the potential to double the market cap of its parent firm," consulting firm Bain
Osman said that "to the extent that a newly developed RIA has a distinguishable value proposition, there may be some benefits" to starting a firm rather than buying one. Housman said the advisory firm had no plans as of now to sell its services to other independent advisors.
