Private banks cater to wealthy

(Globe Staff)

Nick Hofer is not your typical banker.

He recently dropped off a bundle of foreign currency and travelers checks for clients on Beacon Hill who were preparing for a family vacation to Africa. He drove to the Chestnut Hill home of a couple to help them and their children set up new accounts after moving to Massachusetts from California. And earlier this year, he tutored a Wellesley client's fourth-grade daughter in math.

Hofer works for Boston Private Bank & Trust, a bank that caters largely to the wealthy by offering individual attention, personal service, and amenities such as invitations to exclusive lectures and receptions. As low interest rates and rising regulation make it harder for banks to make money from run-of-the-mill products like basic checking accounts, many financial institutions have tried to expand "private banking" units that serve millionaires and can generate significant profits by helping clients manage their fortunes.

"It's very rapidly growing and highly profitable," said C. Steven Crosby, head of US private banking and wealth management practice at PricewaterhouseCoopers, also known as PwC. He estimated the global private banking industry has been growing by roughly 20 percent a year — despite sluggish economic growth recently.


Bank of America, one of the nation’s biggest banks, has outlined plans to eliminate 750 branches over the next few years and eliminate tens of thousands of jobs, but still decided to add hundreds of jobs to its private banking unit. Rival JPMorgan Chase’s private bank is also expanding, hiring 200 advisers across country this year and 25 more in Boston over the past two years.

First Republic Bank of San Francisco, another bank focused on affluent customers, added two branches in Massachusetts this year, one in Wellesley and another in Boston's Financial District. And Boston Private, which is adding branches in San Jose and Pasadena, Calif., next year, just doubled the size of its Kendall Square office in Cambridge.

Boston is considered a particularly attractive market for private banks because of the large number of affluent households.

First Republic recently estimated that the Boston area has roughly 88,000 high net worth households — those with more than $1 million in cash and investments. Among US metropolitan areas, Boston ranks fifth in households with more than $5 million, according to JP Morgan, behind New York, Washington, Los Angeles, and San Francisco.


The profit in private banking comes from selling wealthy clients a suite of services, much as telecommunications companies make money by bundling phone, Internet, wireless, and television into one package.

Boston Private and similar institutions have expanded, offering wealthy clients tools to manage their fortunes.
Boston Private and similar institutions have expanded, offering wealthy clients tools to manage their fortunes.(Yoon S. Byun/Globe Staff)

Once clients open accounts at private banks, they are usually referred to a team of professionals that can help manage their investments, loans, and estate planning, generating much more in fees and revenues than a simple certificate of deposit or typical home equity loan.

Private banks generally attract customers by focusing on personal service. Instead of telling customers to line up for a teller or phone a call center, private banks offer clients the name, e-mail, and direct phone number of a personal banker assigned to cater to their financial needs — even on nights and weekends in some cases.

At Boston Private Bank, Hofer has just 100 customers — giving him a chance to get to know each of them well.

He prides himself on remembering details about their work and families. If he hasn't heard from clients in a while, he'll call them to just to see how they're doing. And if customers can't meet him at his office, he'll come to them — whether it's at their home, business, or a restaurant.

"It's really based on their convenience," said Hofer, a senior vice president.

But many private banks won't offer this kind of service to just anyone who strolls into the lobby. J.P. Morgan Private Bank, for instance, typically requires customers to have at least $5 million in investable assets.


Boston Private, although it offers accounts with as little as a $1,000 minimum balance to avoid monthly fees, tries to attract clients with $3 million to $30 million. Bank of America's private bank, US Trust, said it focuses on customers with assets of more than $3 million.

Bank of America, based in Charlotte, N.C., is hiring for US Trust, which it bought from broker Charles Schwab Corp. for $3.3 billion in 2006. Next summer, when Bank of America opens one of its larger, distinctive "flagship" branches in the Back Bay, it will include private rooms there for US Trust.

"We view it as a growth business here in Boston," said Bill Hatfield, regional executive for US Trust.

As one might imagine, private banking customers demand discretion, and private banks tend to keep a low profile.

J.P. Morgan Private Bank's Boston office is located on the fourth floor of a building at Rowes Wharf — with no J.P. Morgan sign or ATM out front. The bank does little advertising, instead relying on referrals. Ideally, J.P. Morgan hopes to build relationships with families that last for generations, said Marc White, the regional head of the bank.

Boston Private said it also relies mainly on word of mouth to attract wealthy customers. But the exclusive customer base hasn't insulated it from some of the problems other banks experienced, such as bad mortgage loans. The parent company, Boston Private Financial Holdings, was hit hard by the housing bust, especially by loans in California and Florida, and racked up tens of millions of dollars in losses. It wound up divesting its Florida subsidiary, Gibraltar Private Bank & Trust, and more tightly integrating operations around the country.


Nick Hofer, a senior vice president at Boston Private, knows each of his 100 clients well.
Nick Hofer, a senior vice president at Boston Private, knows each of his 100 clients well.(Yoon S. Byun/Globe Staff)

Boston Private Bank chief executive Mark Thompson said the bank is now on firmer footing with brighter prospects ahead. In Luxury Institute's latest survey of customers worth at least $5 million, Boston Private ranked second among wealth managers, only trailing Brown Brothers Harriman of Boston, one of the nation's oldest private banks.

"We're very positive and optimistic about future growth," Thompson said

Greg Susco of Needham learned of Boston Private from his father. He's had an account for 12 years and found it far better than working with a traditional retail bank.

For instance, Susco says he's never had to wait in line. He considers many of the bankers his friends. And whenever he needs something, he can call his private banker, Hofer, on his cellphone — even on a Saturday — and set up a time for him to swing by his home.

"It's a wonderful relationship," said Susco, 35, vice president of Telamon Insurance & Financial Network, an insurance brokerage in Newton. "It's nothing like going to the large banks."

Todd Wallack can be reached at twallack@globe.com. Follow him on Twitter @twallack.