The Chicago wealth management industry has been through a tough time during the recession but there are signs of recovery. This publication recently spoke to some of the key players.

One of the premier wealth management markets in the country, Chicago is dynamic, growing and lucrative, but at same time quintessentially Midwestern: somewhat conservative, family-oriented and close-knit.

It’s an environment that has allowed solid, sizable, resilient, home-grown institutions - Northern Trust being the most notable example - to thrive and prosper.

Harris Private Bank, Harris myCFO, The Private Bank, William Blair & Company, Gresham Partners, Altair and Guggenheim Partners also have local roots and a  strong market presence.

Chicagoans aren’t parochial, however. Well-established financial giants such as JP Morgan Chase, Goldman Sachs, UBS, Credit Suisse have also been well-received, and Wells Fargo, yet another powerhouse, is making a major push into the wealth market.

“Traditionally, Chicago has been a very conservative,” said Doug Regan, president of Northern Trust’s wealth management group. “The financial crisis confirmed a typically Midwestern orientation toward institutional safety through strong asset allocation and diversification.”

Family businesses cornerstone of market

Family business owners are also a defining characteristic of the Chicago wealth management market, say local executives.

“There is a great reliance on operating entities in this market,” Regan said. “People like to hold on to the family business. Even when they had good opportunities to sell, they like to hold on to operating revenue and cash, and I think the crisis confirmed that orientation.”

Many of The Private Bank’s clients are owners of small to medium-sized privately held businesses, said Wallace Head, chief executive of wealth management for The Private Bank.

“Business owners are very characteristic of this market,” Head said. “You can’t separate their business and personal needs. They tend to be conservative and use sophisticated, aggressive strategies in smaller doses.”

Even ultra high net worth clients in the Chicago market keep a low profile, said Matthew Bonaguidi, partner at Gresham Partners.

“They’re usually self-made, very low-key and not big spenders,” Bonaguidi said. “On the East coast, you’ll see more transactions, but here the focus is more on the operation of the business.”

Personal relationships critical

Chicago wealth clients also place great importance on personal, long-term relationships with their wealth managers, according to local executives.

“There’s a high concentration of people here who want to deal with people they know,” said Head. “Relationships are very important in the Midwest.”

“These are people who have built a business, delegated trust and expect a long-term personal relationship and performance,” said  Bonaguidi. “They are looking for similar characteristics in a wealth manager.”

Family business owners are particularly concerned with privacy and maintaining confidentiality,” said Rodney Goldstein, chairman and managing director of  Frontenac Company, a Chicago-based firm that invests in family founded businesses. “Owners here place a high value on integrity and relationships that stand the test of time.”

The financial downturn that began in the fall of 2008 has had a profound impact on every wealth management market in the country, Chicago being no exception.

To be sure, the market is still considered an attractive one, as perhaps best evidenced by Wells Fargo Private Bank’s aggressive expansion into Chicago that began as a start-up three years ago and yielded net income after tax of $1.5 million.

Last year that number leapfrogged to $20 million on $50 million of revenue, said Chip Flannagan, the bank’s senior vice president and regional director, and he expects exponential growth to continue.

Wells will have 50 client-facing professionals in Chicago by the end of the year, Flannagan said, 80 by the end of 2011 and over 150 by the end of 2012.

“It’s a huge, lucrative market,” he said. “There are over 24,000 households with investable assets over $5 million, and the corridor between the Miracle Mile downtown and Lake Forest is one of the wealthiest in the world.”

Turning the corner

Looking ahead, Flannagan believes Chicago has finally “turned the corner” after a difficult year and a half.

Like many Chicago wealth managers, a sizable chunk of Wells Fargo Private Bank’s clients are business owners in what Flannagan  calls the “middle market: ” companies with between $50 million and $500 million a year in revenues.

“We’ve seen resurgence in the middle market in the last few months,” he said.

“People have been asking how do we grow a business from a wealth management perspective. That’s the last thing they wanted to talk about over the last 18 months.”

Joe Calabrese, president of Harris myCFO, is also optimistic that the worst is over.

“We’re seeing more private equity coming into the market, more people thinking about succession planning and more issues around selling,” he said.

Harris myCFO itself is poised to take advantage of a market rebound, Calabrese said, noting that Harris, thanks to its parent company the Bank of Montreal has “significant capital to make acquisitions.”

New reality
Nonetheless, wealth managers in Chicago have had to adjust to a post-2008 reality.

“There’s been less new wealth creation,” said Matthew Bonaguidi, partner at Gresham Partners. “The world we live in now is a lot more complex. We have to be innovative and proactive about to manage risk. And clients are certainly more proactive and feeling anxiety about their house, their retirement and their business. The debt overhang is also a big concern. All this requires a lot of expectation management.”

Fees have also come under pressure, wealth managers said.

“Fees have become more of an issue because of lower returns and return expectations,” said Wallace Head, chief executive of wealth management for The Private Bank.

Head also called the current environment a double-edged sword for wealth managers.

“Wealth managers have to demonstrate to people that they need some help, but at the same time they better know what they’re doing and meet client expectations or they won’t be in business very long,” he observed.

Going forward, Head said he expected an increasing focus on absolute returns, downside risk protection, active management and “an increasing use of non-US strategies in all asset classes.”

The Chicago market’s historic reliance on traditional asset classes is indeed changing, agreed Doug Regan, president of Northern Trust’s wealth management group.

“We’re seeing more interest in high-end hedge funds and private equity managers,” Regan said. But real estate will remain an important factor in wealth creation in Chicago, he predicted.

“Chicago is an historically strong real estate town,” Regan said, “and there are some real opportunities for Chicago families with cash to make significant headway in commercial real estate over the next 24 months.”
Chicago is also becoming more of a global market, according to Regan.

“The client base is evolving. More people are moving into the city, people are coming from all over the world, the city’s commercial base continues to expand and the city is investing in real infrastructure and transportation projects that will make it more attractive as a place to do business and create wealth.”