Craig Sutherland, Executive Vice Chairman, Mellon Wealth Management, sat down with WealthBriefing in his Boston office two weeks before the merger with Bank of New York closed.

Craig Sutherland, Executive Vice Chairman, Mellon Wealth Management, sat down with WealthBriefing in his Boston office two weeks before the merger with Bank of New York closed. Mr Sutherland, who joined Mellon eight years ago from Northern Trust, discussed what the creation of Bank of New York-Mellon will mean for the two companies, their clients and the wealth management industry in general.

How is Mellon’s position in the wealth management space going to change when the Bank of New York merger closes?

We crossed $100 billion in total assets earlier this year, before the combination. Three quarters of that is for families that have relationships of $10 million or more with us. When we come together that statistic is going to change. Bank of New York brings client assets of over $60 billion. If you look at the statistic within the Bank of New York where they have client assets over $10 million that number for the combined firm jumps to more than $115 billion.

In terms of geographical reach, we have been in New York on a de novo basis for the last 10 years. Having said that, we were around a couple billion dollars in assets under management, but in New York that’s not a big presence.

BoNY brings to us a huge presence in obviously one of the most important markets in the world. That $60 billion in assets is concentrated in the tri-state area of New York, New Jersey and Connecticut. We bring to them more of a national footprint, where our offices are closer to some of the clients they’re servicing from around the country. They didn’t have the physical footprint we do nationally so it’s a very nice fit.

What is the merger going to add in terms of services for clients?

They bring a couple of capabilities that marry nicely with ours in terms of their investment architecture. They have a real estate investment capability that we have not had. One of the reasons we didn’t prioritise that was many of our clients had a lot of real estate already. But they bring this to us.

We’ve had a huge complex in the alternative space with our minority interest in Optima Fund Group. But Bank of New York has a huge alternatives complex in Ivy Asset Management so our tool set in the alternative space has grown significantly as well.

One of the things we share is a fiduciary expertise. BoNY was the first bank in the US and they settled the first trust in America. And Mellon has a long history of overseeing the fiduciary arrangements of some of the wealthier families in America. That’s an experience we share culturally. But they also bring some offshore trust capabilities that we did not have. That’s an important addition to our capabilities, one because we’ve just opened an extension to our family office group in London and two because we are well poised to access that market with a very large constituency in Miami which is a gateway to Latin America and in San Francisco and Seattle which is a bridge over to Asia.

How crucial is the shared fiduciary history in making this merger work?

It’s an element. But you have to make a big distinction between groups that are coming together and are truly integrating versus those that I would say are just aggregating. There are strategies that other firms have where they are rolling out pieces of the business – there’s an investment advisor over here, there’s a wealth manager over here, there’s another firm over here that does this. They say, ‘We’ll aggregate it all so we’ll have it all.’ That’s great but the real question is, did you integrate it all?

If you’re a financially astute person you can aggregate all these capabilities, but whether or not you get out of them the synergies you’re expecting on service growth, on sales growth, on revenue growth depends on a management structure and culture that is going to allow all that to come seamlessly into every client relationship. If you go out and acquire it, that’s step one. Step two is how do you have a management structure where clients actually benefit; that’s a harder challenge.

The success will come with the philosophical point of view in terms of how you view your role relative to clients. You’ll never integrate unless you have philosophical agreement. You can aggregate financially but it’s the talent you wedge between the resources and the clients that make all the difference in the world, and if the talent is not retained because the culture is inconsistent no one ever realises the synergies. We’re confident in our odds of being successful.

Is there a limit to the benefits of scale?

If you’re thinking about it relative to how it can bring incremental capabilities and resources or technological support, I don’t think there’s any end to that. Where I think it’s a huge challenge is the scalabilty of management structures and corporate culture. The combinations will never work unless there’s a common culture and unless you get the hearts and minds of the people who leverage all these resources on behalf of the clients. That will determine – in our case or any other firm – whether they get all the benefits of what they hope to get from merging.

Is it fair to say clients aren’t going to see anything different in the first 18 months as you try to merge the cultures of Mellon and Bank of New York?

Well, I think one of the things we’re embarking on is a large internal effort to speak to all the things we have in common and where these capabilities merge and come together for clients. There’s not a lot of change for the client. What will determine our success, from a client point of view, is are these things good or bad? That’s a very people-dependent answer. You don’t want your people saying ‘I don’t know what the future holds. I’ll let you know when I know or I’m just hoping I’ll get a package.’

How do you place your merger in the context of other mergers in the wealth management industry?

With ours, there’s tremendous synergies between Mellon and BoNY in high net worth, global custody and the institutional asset management business. On private wealth our odds of success are high because of the success we’ve had integrating smaller firms. We’re not two firms that have come at it from completely different parts of the industry. We’re not two firms that had completely different product sets. We’re not two firms that had people who view clients from two different prisms; the people who have been attracted to us have been in this advice-based business model for a long time - not a transaction-based model and come over. In that sense, there are not high cultural hurdles for us to jump over, rather just more of the internal training. Clearly in the press there have been stories about cultural integrations between two firms in our industry that could not be more different. We don’t have that problem.

Why are mergers in the wealth management business increasing?

This is a business that has a huge market - number one, it’s demographics. Number two it’s a huge market that’s growing fast. It’s also a very fragmented industry. We’re one of the top leaders, but we have a fraction of the market share. So, it’s big markets growing fast that have no clear market-share leader, and add a fourth thing: it’s a very profitable business when executed correctly. That is a perfect storm formula for competition to come rushing in. For those that have economic capital they’re focused on acquisition to avoid the lead time associated with de novo extension. The risk for acquirers is, are you going win over the hearts and minds so what you bought stays in place?

Are clients worried the firms are focused more on growing by acquisition than servicing their needs?

Bigger is not necessarily better, although I would put a major caveat on that. One of the governors of somebody’s ability to be effective is constrained resources. If you’re going to advise someone on wealth transfer, fiduciary arrangements, taxes, investing in many asset classes across many styles and approaches and across geographies, private banking, credit, all these kinds of things, it takes tremendous depth and breadth of resources.

There’s nothing wrong with scale that relates to your ability to augment your capabilities and expertise. If you separate that from what a client cares about – my money and my relationship – what means something is how this feels for the client.

The question is: “Do I have talented, experienced people helping me?” The other thing these people look for is anecdotal information. They’re going to ask who they play golf with and where they should go. Many clients are not going to say they want a big firm or a small firm; they’re going to say, is this firm capable of handling the affairs that I’m concerned about?

What is it going to take to be a top wealth manager in the future?

Wealth manager is a term with equal meaning to the term hedge fund. There are a million iterations of what it means to be a hedge fund and the same is true with a wealth manager. For us, it’s the question of salesmanship versus stewardship. It shouldn’t be buyer beware. It should not just be what sells but what serves the clients.