Brokerage Firms Are in Pursuit of a Diversified Client Base, Looking to Keep Up With a Demographic Shift in U.S. Wealth
By Ben White
Washington Post Staff Writer
Tuesday, May 10, 2005
NEW YORK -- A handful of well-dressed professionals gathered in a gallery at Christie's auction house here the other day to listen to a South Asian art expert discuss works soon to go on sale, including several by Maqbool Fida Husain, considered India's Picasso.
No one in the crowd planned to buy any art. In fact, few even cared about it. They just wanted to sound smart at a cocktail reception later in the evening.
After the presentation, the group, made up of Merrill Lynch & Co. financial advisers, adjourned to a conference room to plan strategy for the event. "We would like you to meet as many people as possible and hopefully bring in some new business," said Jyoti Chopra, head of Merrill's South Asian business development unit. She explained that the crowd would include dozens of "pre-qualified" prospective clients, meaning those able to invest around $1 million.
The Christie's event provides a snapshot of Merrill's aggressive effort, replicated to varying degrees among Wall Street firms, to harness demographic shifts in American wealth.
The Merrill effort, headed by three-time cancer survivor and former star financial adviser Subha V. Barry, has so far focused on wealthy South-Asian Americans and Latinos in a handful of big cities, including the District, but is expanding to include Native Americans, African Americans and Chinese Americans.
A quick look at demographic and economic data makes clear why big brokerage firms such as Merrill -- along with other U.S. industries -- are scrambling to extend their reach. Hispanic Americans represent about 13 percent of the U.S. population, and their numbers are growing faster than any other group. Latino wealth also is rising, as second-generation Hispanic Americans earn more than their parents. Latinos in the United States are expected to have nearly $1 trillion in purchasing power by 2010. According to Merrill Lynch surveys, 25 percent of South-Asian Americans earn more than $100,000, far more than the average.
While commercial banks have made targeting minorities a priority, brokerage houses have done less, analysts say. That inactivity leaves Wall Street balance sheets vulnerable, especially as the first wave of baby boomers begins to retire in the next few years and starts spending money rather than investing it. "Brokerage houses not paying attention to these new markets are going to slip behind, and it's going to hurt their earnings," said Richard X. Bove, banking analyst at Punk, Ziegler & Co.
Barry recognized all this. Her second successful battle with Hodgkin's disease had inspired a desire to do something different, and in 2001, she chose to junk her brokerage career. She noticed that neighborhoods around her Princeton, N.J., office were changing as upper-middle-class families of Indian, Chinese and Korean descent moved in.
But for years, Barry, who came to the United States from India in 1983, remained the only nonwhite adviser at her branch. "It wasn't because they were bigoted," she said of her colleagues. "They just didn't see any reason to change."
So Barry pitched the idea of a multicultural business unit to E. Stanley O'Neal, then head of the firm's private client group and now the only black chief executive of a major Wall Street firm. She described her effort as different from Wall Street's typical approach to diversity, namely recruiting a few women and minorities to pepper the ranks of white men.
O'Neal, known for attention to the bottom line, liked the idea. But only enough to give Barry a staff of three and a slim budget of $500,000. He demanded that she record exactly how much her unit helped bring in. That wound up helping Barry win over skeptical financial advisers such as Paul T. Sullivan, manager of Merrill's advisers in New York and among those at the Christie's event. At first, Sullivan thought Barry's unit might just be touchy-feely. "Then I got involved and realized this was the real deal," Sullivan said before the Christie's cocktail party. "Frankly, I don't know anything about art. But we are here to do business."
Since its official launch in 2001, Barry says, her small unit has helped Merrill bring in 3,000 new accounts and $6 billion in assets. In 2002, those accounts earned $5 million for the firm, she said. In 2004, that number jumped tenfold, to $50 million.
When she started the group, Barry hired Chopra to head up the South Asian effort and later added Mario J. Paredes, who spent 27 years as a financial adviser to Roman Catholic institutions, to help target Latinos. (Barry now has a staff of about 13 and a budget of about $5 million.)
Paredes has focused much of his attention on Washington, especially Latinos in the diplomatic corps and at financial organizations such as the Inter-American Development Bank. Paredes said Merrill also has a strong relationship with Cardinal Theodore E. McCarrick, archbishop of Washington. McCarrick addressed a Merrill conference in New Jersey last summer. (Barry affectionately refers to him as "Father Ted.") In churches around the area, Paredes said, Merrill often translates its work for the parish into business with wealthy church members. There is never a hard sell after Mass, just casual relationship-building.
Paredes also has pushed Merrill to hire more Hispanic brokers. When he joined the firm four years ago, Paredes said, Merrill had 200 Latino financial advisers. Now it has 550.
In the South Asian market in Washington, Merrill has developed a relationship with Tie-DC, a networking group for Indian and other South Asian executives from Northern Virginia.
The sponsorship gets Merrill advisers into Tie functions, such as a lunch last year with a top economic minister from India. Merrill executives, including Barry, often attend Tie events and take prospective clients out for dinner afterward. "We have a number of members whose wealth is now entirely managed by Merrill," said Tanya Gridhar, executive director of Tie-DC.
Other brokerage firms are also scrambling to keep up with the changing face of wealth. Citigroup Inc.'s Smith Barney brokerage unit follows an approach similar to Merrill's, sponsoring cultural events, such as a recent exhibit of Mayan textiles in San Francisco, to meet potential new clients. "In everything we do, we try to tie it into Latin American culture," said Octavio Sacasa, manager of Smith Barney's Hispanic initiative.
Smith Barney also has been holding seminars for wealthy black investors. Mindy S. Ross, managing director of Smith Barney's target market initiatives group, said she recently held seven hours' worth of focus groups with wealthy African Americans in Washington, including lawyers, professional athletes and others.
Lately, Ross said, Smith Barney, like many brokerage firms, has grown concerned with its aging client base. So she has focused on wealthy women and their adult daughters, positioning the firm to benefit from the huge transfer of wealth expected to occur in the next several decades. (The Boston College Center on Wealth and Philanthropy, formerly the Social Welfare Research Institute, predicts at least $41 trillion will shift from one generation to the next over the next 50 years.)
While Merrill gets plaudits for its recent work, the firm was not the first to tap the wealth of upwardly mobile immigrants. Discount broker Charles Schwab Corp. broke new ground in 1989 with toll-free numbers for investors in Cantonese and Mandarin and new branches in San Francisco's Chinatown and other big Chinese American communities.
Schwab focused on overcoming cultural barriers among first-generation immigrants by holding seminars to explain U.S. financial markets and the nature of investing to potential clients more accustomed to keeping money in cash or in banks run by other Chinese.
Wallace Louie, a Schwab marketing executive and son of Chinese immigrants, said the effort has brought in $10 billion in new assets. And it has grown to include the creation of a Chinese-language trading Web site and marketing efforts to Korean Americans and Vietnamese Americans. As Schwab's immigrant clients have grown wealthier, many have moved from cities to suburbs. Schwab has opened new branches to follow them.
Barry knows she does not have the field to herself. At a recent meeting with Merrill employees, she stressed that diversity was no longer just the mantra of human resource executives but a business imperative. She ticked off handful of upcoming events where Merrill would try spread the brand, including a Native American art exhibit featuring Wilma P. Mankiller, the first woman elected principal chief of the Cherokee Nation. (Native Americans flush with casino wealth are particularly attractive to Wall Street.)
Finally, Barry expressed her most fervent wish: to shut her unit down. "If we do this right, you won't need a separate group up on the shelf anymore," she said. "I want you all to put me out of business in 10 years."
As for the Christie's event, Chopra said that it has already produced one new million-dollar account and that she expects several more.