By Steve Garmhausen
Joe Skarda's first order of business upon joining KeyBank as president of wealth management in 2021 was to turn more of the Cleveland-based institution's retail banking customers into wealth management clients. "Our data told us that if we could provide a value proposition that was attractive to this client segment in our retail bank that there was an outsized opportunity to bring over a significant chunk of wallet," he says.
Skarda and his colleagues have made good on that opportunity, boosting net flows by a factor of 10. Speaking with Barron's Advisor, Skarda explains how an ambitious education initiative set the stage for that growth. He reveals a big change that has propelled growth in KeyBank's private banking unit. And he recounts how taking on an unwanted assignment 20 years ago proved to be his big break.
How did you originally become interested in the field of finance? My brother, who is nine years my elder, was in finance. Our father is a plumber, and we both got stuck on many job sites doing plumbing work. So when I'd see my brother putting on a suit and tie to go to work, that seemed a heck of a lot easier than grabbing a tool belt and going to work. I picked his brain on the wealth management industry, and that's what initially turned me on to it. I took my Series 7 right after school and sat on a trade desk at TD Waterhouse.
Your business acumen really started to shine through in 2005, when you were tapped as a JPMorgan Chase market manager for Brooklyn, Queens, and the Bronx in New York. Can you talk about that experience? This wasn't considered the most desirable territory at the time. I know I wasn't first on the list for the position; other people turned it down because they probably didn't find the territories attractive enough or were intimidated by them. In probably nine months we were able to create steeper growth trajectories than they were experiencing in Long Island, or Manhattan or Westchester.
In 2021 you were managing director of banking and wealth management at JP Morgan Chase when you jumped to KeyBank as president of wealth management. Why did you make the move? I think back fondly on my 20 years at JPMorgan Chase. When I was introduced to my now boss, Victor Alexander, the head of consumer banking, the meeting was set up under the premise that Victor was a great guy, brilliant, but wasn't as well networked in the wealth management space, while I was very well networked in wealth management. I shared my views on how Key Wealth should think about a mass-affluent strategy, or how they should go to market in the private banking business and ultrahigh-net-worth space, or how I thought they could compete with the growing RIA world. And the more we talked, the more our views aligned. At the time I had a role in the central part of the United States. This was managing the whole country, and doing it across four different client segments. That is ultimately what was most attractive.
What were your initial marching orders? Our wealth business is four different monolines. We have a mass-affluent business, a core private bank, an ultrahigh-net-worth space, and an institutional advisory group. The first priority was around the mass-affluent strategy. KeyBank had a lot of client data on this area and how the client segment was underserviced. Our data told us that if we could provide a value proposition that was attractive to this client segment in our retail bank that there was an outsized opportunity to bring over a significant chunk of wallet. So the first mandate was building out a mass-affluent strategy.
Before Key Private Client was launched in March of 2023, we didn't have much of a differentiated service offering between the different segments within retail, in particular the mass-affluent one. So first we took a look at the deposit account offerings out in the marketplace. Our ability to deepen relationships from a wealth perspective was minimal if we couldn't create a frictionless banking experience. We looked at deposit accounts by way of fees, access to money, 1-800 numbers, who customers speak with, etc. We wanted to know how we could create a frictionless deposit and retail banking experience for this client segment, which would open the door for our wealth people to talk to more of these clients.
From there, we looked at the investment platform that was part of our retail business. Each of our product platforms for different segments was managed very differently. And a lot of the intellectual capital, the product capabilities, the asset allocation modeling, etc., that was being done in our high-net-worth and our ultrahigh-net-worth space was applicable to our mass-affluent clients, who we define as having between $250,000 and $2 million. So we gave our chief investment office, which sits more broadly throughout wealth, responsibility for not only managing our private banking product platforms, but also our mass-affluent and our retail platforms. We took all that intellectual capital and piped it into retail, both from a product construction standpoint and an ongoing education standpoint.
Can you say more about that education initiative? The efforts we had taken to educate our private-client advisors in our mass-affluent space historically had not been that great. It was almost all dependent on which asset managers or insurance companies they were partnering with. So we took all our in-house intellectual capital on our investment strategy and how we manage portfolios, and gave them access to all of that.
Both the private advisors in the mass-affluent space and the licensed bankers in their branches got educated very quickly. Their capital-market IQ rose significantly quickly. That gave them a lot more confidence that they were going to have the tools and resources necessary to provide a world-class experience when speaking with mass-affluent clients.
What other steps did you take? We did a heck of a lot of hiring and training good people. We hired a lot more private-client advisors and a lot more private-client bankers so we could have more conversations with that mass-affluent segment.
What have the results of your mass-affluent push been so far? We launched Key Private Client in March of 2023. In about 18 months, we have added more than 37,000 households and about $3.9 billion of new household assets to Key. As of September, AUM related to our mass-affluent clients has grown by more than $2.3 billion compared with March 2023 -- that's 68% growth. Our mass-affluent client segment has a monthly average of more than $100 million in net flows in 2024, compared with about $10 million in 2020.
What was the next priority? Once we got our mass-affluent strategy going, we started to think about our private bank. We define that segment as $2 million to $10 million. They've done a fantastic job for many years, and they've got a loyal client following. Historically this had been a traditional private-banking platform: You'd have the relationship manager, the portfolio strategist, the fiduciary strategist, a financial planner, and you might have a handful of associates helping service clients. It was very much a team approach. And while the subject matter expertise of all those people is super important, client preferences had evolved to want that single point of contact. Yes, they want all the subject matter expertise, but there's no substitute for that trusted advisor, that single point of contact who is the conduit between clients and all KeyBank's resources.
In the past year we've poured a ton of time and energy into developing our relationship managers to be able to do modular financial planning themselves, so they wouldn't need to lean on a financial planner in every single client interaction. We're giving them a litany of capital market training: Here's our asset allocation modeling, here's the thesis that guides our investment decisions, here are our capital-market views, here's how you can have a conversation with a client comparing how their assets are invested today versus how we think they should be invested based on our capital market views.
Giving them that education reduces the dependency on the portfolio strategists. Of course, if they have a client scenario where they want to get into more complex types of investment vehicles, like private equity, private credit, stand-alone hedge funds, etc, then the portfolio strategist and the subject matter expert is always at their disposal.
This initiative has allowed us to increase head count in the relationship manager and associate relationship manager ranks from 112 in December of 2020 to 164 people as of this October, without the incremental costs associated with all the portfolio strategists, financial planners and other expenses. The business experienced negative net flows before 2021-but since then we've averaged $62 million a month in net flows.
What has growth looked like in the ultrahigh net worth space and the institutional advisory group? Key Family Wealth, which is the multifamily office division of Key Private Bank, is one of the largest and oldest multifamily offices in the country. It now manages approximately $23.7 billion in AUM as of Sept. 30, having grown by 11.3% since September 2021. Key Institutional Advisors had approximately $14.7 billion in AUM as of September 30. That's up 5.4% since September 2021.
What are your plans for 2025? We're going to continue to invest in all these businesses, in two main areas. We invest a lot in people, both in bringing in world-class people and in training and developing them to make sure their capital market IQ is such that they can service any of our client segments. We're planning to add about 60 people next year, mainly in our mass-affluent and our core private banking businesses.
(MORE TO FOLLOW) Dow Jones Newswires
November 22, 2024 12:04 ET (17:04 GMT)
Copyright (c) 2024 Dow Jones & Company, Inc.
Comments