Just A Bit More Stress For Advisers, Clients
When stress is your middle name, stress tests are business as usual.
Wealth advisers and clients have been worried about the health of their banks since last September, and the new government report card isn't likely to mean dramatic new behavior. While a good stress test grade will make nice marketing fodder for wealth advisory groups at the stronger banks, a bad one shouldn't foreshadow a wave of defections.
Advisers and their clients will simply have another piece of the puzzle they have been working on for months. A phone call to one's private banker to ask about the meaning of the results is a good idea, and the answers are likely to be close at hand.
"If you're happy with the service you're getting, this whole series of events should be a nonissue for you," says Matthew Warren, associate director of equity research at Morningstar Inc.
The Federal Reserve is expected later Thursday to say that some tested financial institutions - including JPMorgan Chase & Co., Goldman Sachs Group Inc., MetLife Inc., American Express Co., Bank of New York Mellon Corp., State Street Corp. and Capital One Financial Corp. - are essentially stable, according to reports.
A number of others, however, will be told they need to bolster capital levels. Among them are Bank of America Corp., Wells Fargo & Co, GMAC LLC, Citigroup Inc., Morgan Stanley and Regions Financial Corp.
Wealth advisers won't ignore the results, by any means. M. Holly Isdale, managing director at Bessemer Trust, says that with any change in the status of your bank, "it's worth reviewing the terms of account agreements to ensure that you understand the degree to which assets are protected from creditors."
With the recent spate of mergers, account provisions may have changed. Or, says Isdale, a client may have checked the box allowing securities to be lent from a brokerage account, which could mean the account would be treated differently than other assets if the bank fails.
Money is safe if it's in insured deposits or segregated in wealth management accounts. The Federal Deposit Insurance Corp. protection limit is now $250,000, up from $100,000. Anyone who wants to keep more than the insured amount in bank deposits can spread the money to various banks and keep it under the limit at each one, says Warren.
A few key questions are appropriate to ask an adviser now. Among them: Are my accounts segregated and protected? Do I have any margin loans that should be paid off?
The stress tests have made it harder for some wealth advisers to concentrate on client accounts. Prepping for the tests has been a distraction as advisers ignore accounts in favor of management requests for information.
The tests are just the latest in a chain of Wall Street events having an impact on the wealthy, says Alois Pirker, senior analyst, wealth management at Aite Group, an independent financial services industry research and advisory firm.
"What we've learned in the current crisis is that anything is possible," says Pirker.
Indeed, the stress tests have again emphasized the precarious state of many firms and the decline in reputation of some firms formerly considered unimpeachable, according to Robert J. Ellis, senior vice president of wealth management at Celent.
They are one more reason for clients to consider moving accounts and advisers to think about moving jobs. Just "one more negative issue clients have to think about as they seek to rebuild their wealth," he adds.
--By Arden Dale
(Arden Dale is a Getting Personal columnist who writes about personal finance; she covers topics including tax and estate planning, retirement, investment strategies, and financial needs of small businesses. She can be reached at 201-938-2052 or by email at arden.dale@dowjones.com.)
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