PINNACLE NATIONAL'S
WEALTH MANAGEMENT SYMPHONY
Cover Story
Andrew Singer

ROBERT A. MCCABE, JR. admits that good bank brokers "are not easy to find." Indeed, finding qualified brokers—those with at least 10 years experience—presents perhaps the largest long-term challenge if McCabe's institution, Pinnacle National Bank (Nashville), is to grow its retail investments business as it would like.

McCabe, at least, should be able to call upon the necessary economic resources to make that happen: He is chairman of Pinnacle Financial Partners, the parent of $3.9 billion (assets) Pinnacle National.

Today, between 50 percent and 60 percent of Pinnacle's brokerage revenue is fee-based—60 percent if one includes mutual fund trails, says McCabe, who oversees Pinnacle's wealth management businesses, including brokerage, trust, asset management, and insurance.

Pinnacle is seeking to develop as many core disciplines as it can to "advise" the bank client, he told us in a recent interview. Wealth management (WM) takes care of bank clients' core personal financial needs. Pinnacle's primary WM targets are affluent individuals, professionals, and principals of businesses.

Today, between 50 percent and 60 percent of Pinnacle's brokerage revenue is fee-based—60percent if one includes mutual fund trails.

Brokerage now generates $5 million to $6 million in annual revenues, insurance $3 million, and trust about $2 million. Total wealth management revenues—brokerage, trust, insurance—stand at about $10 million to $12 million annually, says McCabe.

Viewed another way, brokerage revenues comprise roughly 0.11 percent of average assets, insurance revenues about 0.08 percent, and trust 0.06 percent—all high when compared with the institution's peer group, says Pinnacle's chairman.

Walking the talk

But it is Pinnacle's approach toward wealth management—as opposed to any specific production numbers—that has drawn some outside attention.

"We think they are as close as any to getting it right," says Raymond James' Managing Director John Houston, whose firm works with Pinnacle in the WM sphere.

It all begins with senior management, says Houston. "If they don't view wealth management and brokerage as an integral part of the bank, it's not going to happen." Regarding McCabe: "He believes in it. He wants to walk the talk.

They [Pinnacle] don't hire neophytes" in their brokerage business, for instance. "On a scale of one to 10, they are a 10," says Houston.

Pinnacle looks to wirehouses and other bank investment programs for its brokers.

For wirehouse brokers, working at a bank has traditionally had less "cachet," McCabe admits. Yet there is a growing recognition that banks can offer something that wirehouses can not: A steady stream of referrals. This is a good recruiting tool. Pinnacle, in fact, has brought in four or five brokers recently with wirehouse backgrounds (e.g., Merrill Lynch, Smith Barney).

Pinnacle hires only people with ten years of professional experience. They have built their careers in brokerage, or trust, or insurance—and aren't likely to move on to another area.

The problem with hiring brokers from other banks, by comparison, is that they typically don't bring their books of business with them, notes McCabe. It is the bank that typically 'owns' the retail investment customer, not the broker.

Eschewing fixed annuities

In addition to fee-based products, Pinnacle also sells traditional mutual funds and variable annuities—but virtually no fixed annuities. Indeed, McCabe figures fixed annuities account for only 1 percent of brokerage business.

Why so low? Their financial consultants "sell to need," McCabe answers, and their audience is generally more affluent clients who "tend to select from a broader array of options." Fixed annuities tend to be sold more to the mass market, he says, which tends to be less sophisticated, investment-wise.

Their "sweet spot" is the professional or business owner with $1 million to $10 million in investable assets who has just been introduced to the financial consultant. That FC will put them through a risk assessment process, help determine an appropriate allocation of assets, review with them their plans quarterly, and deliver results in line with or superior to leading market indices, he notes.

The bank has 17 financial consultants (FCs) and six sales assistants. All financial consultants have Series 7 and Series 63/65 licenses. Many have Certified Financial Planner (CFP) designations, and a few have Series 24 licenses (for NASD managers who are supervising branch activities). Pinnacle encourages continuing education.

Much effort, too, is devoted to cross-selling. At sales meetings held Monday mornings, commercial bankers are joined by representatives from insurance, brokerage, asset management, and mortgage units, among other disciplines. They want the commercial bankers to introduce clients to the experts.

'We think they are as close as any to getting it right… On a scale of one to 10, they are a 10.'

—John Houston, Raymond James

"The bankers are the gatekeepers," says McCabe. It helps that Pinnacle hires only people with 10 years of professional experience. They have built their careers in brokerage, or trust, or insurance—and aren't likely to move on to another area. The bank seeks experts who "operate like lawyers," dispensing advice not tied to any specific product sale. This is also more likely to build the confidence of commercial bankers who control access to high-net-worth (HNW) clients.

Another reason that cross-selling has taken hold is that Pinnacle offers no internal incentives. Bankers' bonuses are tied to earnings per share (EPS). Everyone has a stake in growing overall profitability.

Who manages the customer relationship? It is the client's choice. If the client expects to conduct a lot of trading, a financial consultant might become the relationship manager. If the client has legalities that need attention, he or she might prefer a trust officer.

Contributing to EPS

McCabe was asked why wealth management was important to a bank. WM revenues are relatively modest compared with banking revenues, McCabe allows, but pre-tax profit margins are considerably higher—in the 20 percent to 25 percent range. Wealth management contributes substantially to EPS.

Moreover, "We want to be a full-service financial advisor," says McCabe. If a bank can offer WM services on top of traditional banking products and services, the relationship with the customer becomes stronger.

Pinnacle National Bank was formed in 2000. Its founders included five former executives of First American National Bank (one of whom was McCabe), a Tennessee institution that was acquired in 2000 by AmSouth Bancorporation (now part of Regions Financial).

Pinnacle got into retail brokerage immediately after its formation. McCabe personally took responsibility for the area; he had also overseen brokerage at First American National. He coordinates the WM businesses at Pinnacle and is, in fact, the senior manager for all fee-based businesses. (Fee income accounts for about 22 percent to 23 percent of total revenues at the institution.)

Sales meetings are held Monday mornings in which commercial bankers are joined by representatives from insurance, brokerage, asset management, and mortgage units, among other disciplines.

Pinnacle entered trust in 2006 with its acquisition of Cavalry Bancorp, another Tennessee bank. The merger created the second largest bank holding company based in Tennessee. Pinnacle also picked up Cavalry's general insurance agency, Miller and Loughry. About 90 percent of Pinnacle's insurance business today is commercial insurance—property/casualty and employee benefits. (In July, Pinnacle announced the acquisition of another Tennessee insurance agency, Beach & Gentry Insurance LLC.)

The bank later formed its own registered investment advisory firm (RIA), Pinnacle Asset Management, so it could perform its own asset allocation modeling. The institution recommends money managers both inside and outside the bank, says McCabe.

The RIA has life and health insurance expertise, as well as estate planning, charitable giving, and second-to-die insurance capabilities. It is more likely to work with HNW individuals in the life insurance area than is Miller & Loughry, the insurance agency, which, as noted, is focused mostly in the non-life area.

In the trust area, Pinnacle has four trust administrators who solicit new business. Assets under management have grown from $200 million to $600 million in the last two years.

"We would not have entered trust without the [Cavalry] acquisition," says McCabe. "It [trust] is a mature market." Yet since that time senior management has provided more than sufficient resources to trust, along with brokerage, in order to ensure future growth.

In 2008, brokerage revenues are ahead 14 percent on a year-to-date basis, said McCabe in June. Pinnacle expects annual growth in the 20 percent-plus range in all its businesses, "but this is not the best market," McCabe admits.

In terms of WM growth, "The limiting factor is people," says McCabe. They clearly have an "appetite to grow our fee-based businesses" as soon as they bring on additional experienced, professional people.