With the pace of bank mergers rivaling consolidation among wealth managers, David Chubak at Edward Jones thinks many small cities and towns risk becoming virtual “banking deserts.”
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Chubak, head of branch development and U.S. business at Edward Jones, said in a recent interview that people in small communities can most likely still find a local bank or savings and loan to open a checking account or arrange a loan. But as small branches are sucked up into large firms, access is becoming closed off to the services and perks that clients expect from regional or national banking firms, such as electronic payments and a widely distributed network of ATMs.
Seeing business prospects, wealth managers like Edward Jones are moving to make up the deficiency by broadening their bank offerings. Regional banks, meanwhile, are coming at the same problem from the opposite direction, launching private wealth divisions and investing heavily in existing advisory and brokerage businesses.
Chubak said the opportunities became clear this summer when he spent time working from an Edward Jones branch about 30 miles northeast of Indianapolis in Pendleton, Indiana.
“I’d have clients walk in, and they wouldn’t say, ‘Tell me about my investments,'” Chubak said. “They’d come and say, ‘Tell me about my plan. Tell me about how I’m on track.’ … And you can’t answer that question by just looking at a portfolio alone anymore. So convergence is a very logical step for any firm or any company who is dedicated to serving their clients with distinction.”
McKinsey: The future points to bank-wealth convergence
Convergence has become a keyword in the financial services industry as firms seek to increase their ability to hold on to clients by ensuring they can meet as many of their financial needs as possible. On one side of this trend are well-established wealth managers like Edward Jones that want to use banking as a way to add new lines of business while giving clients less need to go to other firms to open a checking account or take out a loan.
On the other side are regional banks and other institutions with long histories of holding deposit accounts and lending out money. Jayne Hladio, the president of the regional firm Associated Bank’s private wealth business, is fond of citing a 2020 McKinsey report that forecast for the decade a rapid acceleration in the convergence of banking and wealth management services.
McKinsey predicted the future will belong to firms that can offer a one-stop shop for financial services, “putting competitive pressure on those wealth managers who remain stand-alone.”
Hladio, who formerly oversaw U.S. Bank’s national wealth business, said Associated Bank’s wealth management offerings have grown directly out of the firm’s roots stretching back 160 years in the banking business.
“Under our umbrella, we have everything,” Hladio said. “We have a full private banking suite. We’ve got an affluent emerging program in retail banking. We have a full trust company. We’ve got an RIA that serves institutional clients. And we have a full portfolio management-investment management team. We still have everything in-house.”
The twin goals of boosted profits, client ‘stickiness’
For many wealth managers, the goal of such convergence is to gain advantages long enjoyed by large wirehouses and other institutions attached to national banking operations. In earnings call after earnings call, executives at firms like Merrill, Wells Fargo and Citi have touted twin benefits to providing lending and other banking services to holders of wealth management accounts. On one hand, it helps to sweeten firms’ bottom lines not only by allowing them to sell more services but also by accommodating practices like “cash sweeps” — shifting uninvested client assets held in brokerage accounts over to an affiliated bank to be lent out at relatively high rates.
On the other, a banking affiliation helps make clients “stickier” — or less likely to move their assets to an industry competitor when most of their needs can be met through a single outfit. Many wealth managers see one of their biggest business opportunities in encouraging current clients to entrust them with managing assets now held away at other firms.
Phil Waxelbaum, the founder of the advisor-recruiting firm Masada Consulting and former head of Deutsche Bank’s private client group, said the financial services industry has been here before.
“We’re in the category of everything old is new again,” Waxelbaum said. “You know, this is the same phenomenon that we saw in the 1990s with the term that no one ever uses anymore, which is ‘financial supermarket.'”
What Edward Jones is taking to the bank
At Edward Jones, which has more than 20,000 advisors and a presence in nearly 70% of U.S. counties, the pursuit of banking is proceeding in two ways. In April, the St. Louis-based firm submitted an application to the Federal Deposit Insurance Corporation and the Utah Department of Financial Institutions to start what’s known as an industrial bank. If granted, the resulting state-chartered bank will extend Edward Jones’ ability to lend to clients and offer traditional banking products such as certificates of deposit.
Meanwhile, Edward Jones has maintained a long-standing partnership with U.S. Bank. It started in 2012 with the issuance of credit cards to Edward Jones clients and has gone on to include checking accounts bearing both firms’ names, an online portal allowing access to those accounts through the Edward Jones app, electronic-payment services and a slew of additional credit cards bearing both firms’ names.
Chubak said he and other Edward Jones executives recognized that it would be foolish to try to build out all those offerings on their own.
“Instead, we focus on what we are strongest at, which is: We are spectacular at building relationships and at running an extremely local business and putting advice at the center of everything we do,” he said. “Our clients are looking for us to be a trusted partner for them, not just on investments, but also on their borrowing, their savings, their investments, their protection altogether.”
Firms’ recent forays into banking come as competitive pressures continue to drive them to reduce advisory fees and allow commission-free trading through their broker-dealer businesses.
For Edward Jones, the wealth manager to emulate is most likely Charles Schwab, Waxelbaum said. Schwab started its banking business in 2003 in large part to become the sort of “one-stop shop” that so many other firms now aspire to be.
Charles Schwab Bank holds more than $450 billion in assets and roughly 2.2 million in client accounts. It consistently ranks among the top banks in the U.S.
“Why are these banks doing this, and why are brokerage firms doing this?” Waxelbaum said. “They’re both doing it for the same reason. They’re experiencing margin compression, and they want to take on diverse lines of business that can expand their margin capability. That’s all it is.”
More than 30 firms file to open banks this year
Edward Jones is far from alone among big wealth managers or brokerages that are seeking to operate banks. Interactive Brokers Group, a firm best known for its online trading system, applied last week for a U.S. bank charter. That came months after UBS, an international giant with a larger retail banking system overseas, submitted an application for its own U.S. charter. All told, more than 30 companies have sought permission this year to open banks in the U.S., according to the consulting firm Klaros Group.
Regional banks meanwhile are fighting to not be left behind in the race to meet all their clients’ financial services needs. Providence, Rhode Island-based Citizens Bank, for instance, recently announced plans to open offices for its private bank in various cities in Southern California and recruited in New York its 10th advisory team this year.
Private banking head Susan deTray said more than 90 percent of the private bankers at Citizens have been pulled out of First Republic, a failed regional bank that collapsed in 2023. JPMorgan bought First Republic out of government receivership in May of that year and later saw many former First Republic advisors leave for rival firms.
Citizens has been one of the biggest beneficiaries of those defections. Its private bank dates to around the same time and now manages $28.4 billion in client assets, a figure up 36% year over year.
DeTray said the private bank grew in part out of recognition that many of the firm’s wealthier clients had needs beyond what a regular retail bank could provide. One of Citizens’ founding principles for its private bank has been “co-location,” or bringing together experts on wealth management, banking and other financial services into centralized offices.
“Our clients tell us this from a practitioner’s perspective, if my banking and my wealth management are not connected, that relationship’s always at risk,” deTray said. “There’s always somebody else talking to your client, yeah, and I’d rather have that other person be on my team.”
Better to start as a bank than as a wealth manager?
DeTray said she thinks there is an advantage to starting in banking and then building out a wealth management business, rather than proceeding the other way. For one, wealth managers often promote a “set it and forget it” approach to investing, meaning they and their clients are supposed to resist any temptation to constantly check their advisory and brokerage accounts.
“But people bank every day,” deTray said. “We have to transfer money every day. We have to pay bills every day. So the day-to-day connectivity with the client is probably going to reside on the banking side, which means that you have a really strong understanding of exactly what the profiles of these people are and what they need.”
Hladio at Associated Bank agreed that banks have the head start in trying to build end-to-end financial services firms that can offer everything from banking to wealth management and more. Many firms seem to underestimate the complexities of running a bank, she said.
“Then you get into it, and you realize that there are a lot of appropriate, heightened standards for regulation, for community reinvestment,” Hladio said. “There are all these fiduciary responsibilities that come with being a bank. So although I think many have this ambition, it is harder than it looks.”
Helping to ensure there are no banking deserts
For that reason, Hladio predicted many wealth managers will continue to pursue convergence via partnerships, such as the one Edward Jones has with U.S. Bank. Meanwhile, regional institutions like Associated Bank — which has its headquarters in Green Bay, Wisconsin — are intent on finding opportunities to bring not only banking but also wealth management services to underserved regions.
“For a lot of firms, if you don’t have at least $10 million to $20 million in private wealth, we may not want to speak to you,” Hladio said. “For us, we begin at $500,000 and go all the way upwards of $150 million-plus.”
Chubak at Edward Jones said he and his colleagues have a similar goal of reaching as wide a swath of the investing and saving public as possible. He said Edward Jones’ partner U.S. Bank has all the banking services anyone could wish for, “but it’s not in 15,000 locations like we are.”
“In many ways, Edward Jones has the opportunity to do what we did when we started,” Chubak said. “We brought Wall Street to Main Street. What we could actually do now is we could bring the best [banking] capabilities to Main Street.”
