Profiting from Trust and Investment Services

Jim Herbert, Chairman and CEO of First Republic Bank, made this presentation last fall. The bank, formerly a unit of Merrill Lynch, makes good use of assorted media, including print ads and newsletters. The primary marketing tool, however, is customer service. That leads to happy customers. The happy customers, in turn, lead First Republic to many more customers through referrals.

"We spend our life taking clients away from other banks," says Herbert, "that’s what we do for a living."

Apparently it's a good living. According to Herbert, First Republic's private wealth management – brokerage, investment management and trust – is "profitable, it’s becoming more profitable and if you add in … the value of the deposits it’s generating it’s very profitable."

 If client-friendly private banking and wealth management can be delivered at a profit and leads to profitable referrals, why have other institutions chosen a different path – different as in "We laid off half our relationship managers and gave our customers an 800 number"?

In The New Yorker James Suroweicki  tackles the question in the context of retailing.

If investing in employees yields such big dividends, why don’t more retailers do it? Partly, it’s a matter of incentives: store managers are typically evaluated on their payroll costs. Moreover, the benefits of keeping payroll costs low are immediate and easy to see, whereas the benefits of hiring more people are long-term and harder to track.

When did so many in the world of business start to believe that only short-term greed is good?