At J.P. Morgan, $9 Million in Assets Isn’t Rich Enough
Firm’s private bank is doubling the minimum to $10 million in investible assets for clients
Clients of the firm’s private bank later this year will be required to have at least $10 million in investible assets, twice the current minimum of $5 million, said people familiar with the matter.
The move is one of the boldest yet among banks that are increasingly focused on managing the money of wealthy clients, who generate more fees and entail less risk than middle-class and lower-income customers. However, because wealthy clients typically require more attention, banks are being more discriminating when deciding who qualifies for such personalized service.
J.P. Morgan’s restructuring of the unit also reflects broader trends that are reshaping Wall Street, including banks’ ambivalence toward deposits in a period of low interest rates and their persistent efforts to cut costs.
J.P. Morgan’s private bank in recent months laid off more than 100 employees, including managing directors in New York, London, Washington and Boston, people familiar with the layoffs said.
The shift could affect about 10% of the private bank’s current clients, based on a J.P. Morgan presentation from February that showed roughly 90% of the private bank’s clients have more than $10 million in assets. Clients who don’t meet the $10 million threshold will be moved to a less hands-on service called Private Client Direct, people familiar with the changes said.
The private bank groups may support a few dozen clients, whereas Private Client Direct, which could have a group half the size, supports an average of roughly 100 clients, these people said.
A February bank presentation showed that about 50% of the unit’s clients have $100 million or more. The private bank managed $437 billion in assets as of the end of 2015.
As the name implies, private banks cater to an exclusive clientele, and many of them provide services closer to a concierge than a bank. Their main function is help clients manage their investments, including retirement planning and the buying of stocks, but private bankers often also assist with everything from snagging exclusive sporting event tickets to the purchase of art.
Private banks also typically let clients buy into certain alternative investments, like hedge funds, that are off-limits to ordinary bank customers.
The focus on wealthier clients “is a trend that we definitely see happening in this industry on the banking side,” said Ken Hoffman, president at wealth-management consultant Optima Group Inc.
Mr. Hoffman said other private banks are either raising their minimums or being more strict in enforcing them as a means of shedding all but the most valuable customers.
With wealth-management groups under increased pressure to maintain profitability, he said, “the only two solutions available are either to move to a much less customized program, which is highly reliant on technology, or increase the average account sizes.”
Large U.S. banks in recent years have been expanding wealth-management units, which don’t tie up as much capital on the balance sheet under new regulations designed to restrict riskier activities.
Wealthy clients also typically generate a steady stream of revenue because fees are based on a percentage of assets under management rather than transactions. A base wealth-management fee is typically an average of 0.60 percentage point of managed assets, with some banks charging as high as 0.75 point, said Donnie Ethier, associate director of research firm Cerulli Associates’ high-net-worth practice.
Additional services like trust, cash management and insurance often impose additional fees.
Revenue in J.P. Morgan’s private bank has increased nine of the past 10 years, hitting $5.8 billion in 2015, according to filings. But the firm’s asset-management businesses are coming under pressure.
J.P. Morgan Asset Management, which includes asset, investment and wealth management, generated $1.9 billion in operating profit in 2015, down 10% from 2014.
While banks once prized large deposits, they are shunning them because low interest rates make it difficult for firms to lend that money profitably.
Meanwhile, at the bottom end of the market, robo advisers are proliferating and driving fees lower across the industry.
These moves are part of initiatives brought by Kelly Coffey, a longtime J.P. Morgan executive who was appointed CEO of the U.S. private bank in March 2015.
In addition to the layoffs that have already taken place, J.P. Morgan’s private bank late last year began putting more of its employees on performance-improvement plans, with the threat of layoffs for those who don’t meet certain goals, according to people familiar with the matter. The bank is hiring additional staff to beef up the Private Client Direct service for clients who fall short of the $10 million threshold.