Bigger isn't always better

By DAVID MOON, Moon Capital Management
June 24, 2007

When Bank of America closes on its purchase of the Charles Schwab subsidiary U.S. Trust Corp. next month, it will be another step by the investment management industry toward providing a high level of personalized service ' but only to ultra-high-wealth individuals.

By combining the private bank and family wealth adviser units of BofA and U.S. Trust, Bank of America will create a new private wealth management unit servicing clients with a minimum of $3 million.

Another BofA unit, the specialized client solutions group, will provide an even higher level of fiduciary services. But don't bother calling if you don't have at least $50 million.

Admittedly, super-wealthy families have burdens and challenges that escape the merely mortal wealthy. Someone with $100 million needs some services and thought processes that you probably don't.

But there aren't many differences in the investment needs between the client with $800,000 and the one with $3 million.

From the investment management firm's point of view, however, the $3 million client is significantly more profitable.

For the last several years, large institutions have chosen to focus their energy, effort and employees on their largest clients. That's certainly their prerogative. As long as the firms retain their clients, it's the easiest way to make the most money.

When Big Bank is purchased by Bigger Bank, which is then purchased by Huge Bank, Small Guy is often the last concern. Client service for 'little clients' gets relegated to an occasional visit from someone at the home office hundreds of miles away or, worse, a toll-free number.

And we haven't even begun to discuss the potential impact on real financial issues like investment performance and asset, income and expense planning. Try preparing for retirement or college education via an 800-number.

If you have money to invest, you can do it yourself, trust someone else to do it, or employ some combination of those two.

It's not impossible to do it yourself, but successful investing requires a certain temperament, average intelligence and the time to do it. The more you have of any of these three variables, the greater will be your odds of success.

If you're going to trust someone, it's often nice to have an actual person to trust, and not to have to constantly get to know a new person.

Some people are lucky enough to hire a local account manager they like, but then they're increasingly likely to need a new game program each quarter or two with pictures and a roster of the new players. If the institution isn't constantly moving the personnel around, the employees themselves are probably constantly switching teams. Or a new corporate owner arrives to change all the rules.

Whatever the cause, the clients end up with rotating service contacts, or no personal service at all.

Change is good. Change is bad. Change is inevitable. But when change means growth, and a corporation's vision for growth is focused on people wealthier than you, change can be dangerous, painful, lonely and possibly costly.

David Moon is president of Moon Capital Management, a Knoxville-based investment management firm. This article originally appeared in the News Sentinel (Knoxville, TN).

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