Merrill Lynch is leading the charge as top U.S. wealth managers increasingly seek to grow their businesses by expanding overseas.
Merrill Lynch is leading the charge as top U.S. wealth managers increasingly seek to grow their businesses by expanding overseas.
That trend was underscored last week when the much anticipated Capgemini World Wealth Report drew attention to the surging number of individuals with more than $1 million in investible assets who live in countries outside the United States, particularly in emerging markets.
India, China and Brazil saw the fastest percentage growth of wealth, according to the report, which is published annually by Paris-based Capgemini and New York-based Merrill Lynch & Co. Inc.
The report reinforced Merrill's strategy of aggressively pursuing international expansion of its wealth management business in emerging markets, said Robert McCann, an executive vice president of the firm and president of its global wealth management division.
"We see an opportunity to grow [wealth management] by making investments outside the United States," he said.
Just last week, Merrill agreed to buy Chile's oldest brokerage firm, Santiago-based Ureta y Bianchi Corredores de Bolsa, and plans to brand it with the Merrill name and use the firm to expand into neighboring countries.
Merrill is also developing an investment platform in local-currency offerings for its wealthy private clients in fast-growing Brazil, said Darcie Burk, head of Merrill's global wealth management business for Latin America.
"The Capgemini report confirmed what we've been experiencing," she said. "There's a phenomenal amount of wealth creation in the region, and the catalyst has been the global appetite for commodities."
Mr. McCann also noted Merrill's rapid growth in India, the firm's joint venture with the Bank of Tokyo-Mitsubishi UFJ in Japan and opportunities to serve wealthy families in Europe who were selling their family-owned companies.
China is "obviously the big prize," he said.
Merrill has been criticized for insufficient commitment to markets outside the United States.
This time around, the financial services powerhouse can't afford to be indecisive, according to industry observers.
"They have to be committed. They have no other options at this point. It's a huge opportunity, and serious players have to make a commitment now or it will be too late," said Alois Pirker, senior analyst for Boston-based Aite Group LLC.
Other top U.S. wealth managers eyeing overseas expansion include Chicago-based Northern Trust Corp. and New York-based Bessemer Trust Co NA.
"From a Western financial provider's point of view, the world is tipping east," said Doug Regan, an executive vice president for Northern and president of its wealth management group.
Northern already has an office in London and is "actively considering Switzerland as a way to attract Middle Eastern clients," he said.
India is also in the firm's sights. The country has long been a strategic partner with Western firms, Mr. Regan noted, and is on its way to becoming "a compelling market in and of itself, and may be a new focal point for U.S.-based firms."
Bessemer also wants to increase its international penetration said Robert Elliott, a senior managing director.
The firm began its push into Europe three years ago by teaming with European partners to form London-based Stanhope Capital LP. The firm is exploring a similar joint-venture approach in Asia, Mr. Elliott said.
Global growth was led by the nations of Brazil, Russia, India and China, which posted a 19.4% aggregate increase in the number of high-net-worth individuals, according to the Capgemini report.
Wealth expansion in emerging markets overall was driven by real growth in gross domestic product, domestic savings rates and market capitalization performances, the wealth report stated.
Rising prices of commodities and natural resources are expected to help sustain that growth, the report concluded.
GRADUAL RETURNS
While most wealth managers believe that international expansion is inevitable in order to pursue the world's newly minted millionaires, they also note that the time and expense required may limit global growth to only the largest firms.
"I think there's a real marketplace out there, but it's a very expensive process, and the returns will be gradual," said Wall Street veteran Jeffrey Lane, the newly appointed chief executive of New York-based Modern Bank, a private-banking-and-asset-management firm. "It's going to be hard for the boutique firm. You'll have to be big, dedicated and patient."
What's more, according to Mr. Lane, who most recently was chairman and chief executive of The Bear Stearns Cos. Inc.'s asset management group in New York, investors outside the United States tend to gravitate to fixed-income securities, a less profitable business for wealth managers than equities.
Firms with less than $20 billion in assets will "find it difficult to migrate outside the U.S. in any meaningful way" unless they participate in a joint venture, said Wallace Head, managing director and chief executive of wealth management for The Private Bank in Chicago.
The firm has no plans to expand internationally. Mr. Head believes that those who do will suffer domestically if they divert their "attention and focus" from U.S. clients.
One of the West Coast's leading wealth managers, San Francisco-based Wells Fargo & Co., is also steering clear of international markets for the time being.
Domestic expansion is a greater priority, said Jay Welker, executive vice president of private-client services and head of the Wells Fargo wealth management group.
"I'm more likely to invest in growing our business in New York City," he said. "There's a lot of upside and not a lot of risk, as opposed to chasing millionaires in Russia."
American firms doing business abroad also have to acclimate to cultural differences, especially in a business as relationship-intensive as wealth management, said Laurant Roux, founder of Gallatin Wealth Management LLC in Jackson, Wyo.
"American firms need to distinguish themselves from the European competition, and private bankers in Europe are very good at dealing with people," said Mr. Laurant, who spent 25 years in Europe working for the Geneva-based firm Pictet CIE.
Another major challenge for U.S. firms was "finding the right talent to go offshore and stay there," he said.
Northern Trust's Mr. Regan doesn't argue that expanding overseas will involve considerable time and money. But in the long run, it will be well worthwhile for the firms that do it, he said.
"It's a long-term investment that will pay big, big returns to U.S. firms who are patient and sensitive to the unique cultures that they serve," Mr. Regan said.
E-mail Charles Paikert at cpaikert@investmentnews.com.
