Colorado Capital Bank has no retail brokerage, no trust department and no proprietary products. Yet this community bank has managed to find success in the wealth management arena without relying on revenue from transactions.

The bank caters only to wealthy clients—often those with a net worth of between $5 million and $100 million.  Owned by holding company Castle Rock, Col.-based BankVest Inc., Colorado Capital operates an investment advisory group that has $100 million of assets under management. And it hopes to grow those assets by 25% in 2010, according to David Twibell, the bank’s president of wealth management.

“Our practice is really operated like a boutique high-net-worth independent [registered investment advisory]  practice,” Twibell said. “It’s a higher-margin practice because it’s much less transaction based.”

Started four and a half years ago, the wealth management business is one that brings in higher margins than those at most small banks, Twibell said. He declined to provide numbers, explaining that the bank is in the middle of a follow-on offering.  

Most of the unit’s assets under management are from high-net-worth individuals and families. Another 10% of assets are from non-profits and some are from a small number of retirement plans. A staff of six, including a chief investment officer, portfolio manager and a financial advisor, serve the clientele.

The advisory approach has so much potential, that it’s been worth forgoing the transaction revenue that a different kind of business would bring, Twibell said.

“Over the short run, I do think we’re leaving some money on the table,” he said. “Our practice needs more patience, but it is a higher margin, more valuable one.”

The wealth management business is also unusual in how it is regulated. Twibell described it as being very similar to a registered investment advisor, which would normally be overseen by the Securities and Exchange Commission.

But when Colorado Capital created the business more than four years ago, it used a carve-out within the financial regulatory structure that allows it to operate as a division of the bank, he said. That means that it’s under the purview of the FDIC and Colorado state regulators rather than securities regulators, he said.

“From a regulatory standpoint, it’s an odd situation,” Twibell said.

That arrangement is rare, but not unheard of, said Kenneth Kehrer, research director of Kehrer-LIMRA. A big reason certain banks might like it is that it would simplify compliance and spare them from having to real with yet another regulator, he said.

The arrangement has benefited the wealth management business, particularly at the outset, Twibell said. When the unit was building a client base, it grew through referrals from the bank, he said. The wealth management business gives advice and has legal authority to initiate transactions, which it has done through a third party, Schwab Institutional, Twibell said.

Colorado Capital is counting entirely on bank referrals and word of mouth to attract additional assets under management, Twibell said. The relatively small size of its wealth management practice enabled it to keep in close touch with its clients during the crash and the subsequent market rally, and that’s likely to appeal to prospective customers who have “lost touch with their advisor,” he said.

At the same time, Twibell doesn’t want the business to grow too quickly to the detriment of client service, he said. “It’s a balancing act trying to provide the right level of touch for clients,” he said. “We lose that if we try to grow too quickly.”

Colorado Capital Bank was founded in 1998. Its current chief executive officer John Davis, and its chairman, Fred Eller, led an investor group that bought a majority interest in 2003. They changed its focus from retail banking to focus on privately held businesses. It has since expanded from two locations to 11 locations. It has approximately $800 million of assets.

Register or login for access to this item and much more

All Financial Planning content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access