Some regional banks are finding that in the asset management business, the middle is a tough place to be.

Banks’ big post-crisis push into the asset management business has so far yielded mixed results. It’s provided fee income at a crucial time, but massive competition—for customers as well as advisors—has tightened margins even for banks that have seen robust revenue growth.

U.S. Bancorp and PNC Financial Services have stood out among regional banks for the strong growth of their wealth businesses, but each bank’s wealth unit operates at an efficiency ratio of about 75%, according to the heads of each bank’s wealth business. That’s substantially worse than the mid-50% range for U.S. Bancorp as a whole and the mid-60% for PNC.

High costs are in part a function of fierce competition in the investment-advisory business, where banks fight for market share with hundreds of thousands of financial advisors.

“Our competition is everybody,” PNC wealth head Orlando Esposito said at a recent RBC Capital Markets conference. “Business is won one relationship at a time. Your competition can be three people on a corner with a dog if they’ve developed trust with their client base.”

In theory, wealth management offers banks high margins and ample opportunities for cross-selling. But those goals have been harder to achieve than many thought.

“Wealth management is very competitive to begin with, and now you have banks falling all over themselves to get what’s left,” said Chris Mutascio, managing director and banking analyst at Keefe, Bruyette & Woods. “I think by and large most banks would tell you not that they have failed but that they have not driven as much gains as they would have liked.”

Finding a niche has been particularly tough for some of the regional banks in the Midwest, which are stuck in the middle both geographically—away from the wealthier customers on the coasts—and in terms of scale. Some have struggled to find a place in between the boutique investment advisors serving the super-rich and the global banks like JPMorgan Chase and Wells Fargo whose ubiquity and name recognition give them an advantage with the lower end of the market.

While U.S. Bancorp and PNC have stood out for their strong wealth-management growth, some of their peers have grown more slowly. Fifth Third’s investment-advisory revenue grew by 3.5% and KeyCorp’s by 2.5% in 2014.

Huntington Bancshares, which has spent the past few years overhauling its business and has not made wealth management a priority, saw its trust-services income dip by 6%. The company recently reorganized the wealth business to give more autonomy to regional presidents, Chief Financial Officer Mac McCullough said. With more control, local executives will be better positioned to win business, the company hopes.

One big reason why growth has been muted for some regionals is that customers don’t naturally think of banks as investment managers.

“A lot of customers segregate what they think of as a bank and a wealth manager,” said Scott Siefers, an analyst at Sandler O’Neill & Partners.  “It’s such a natural overlap, but there’s a psychological hurdle to overcome.”

PNC recently made a big marketing and hiring push aimed in part at fighting that problem.

Its wealth unit has hired about 200 to 300 wealth professionals a year for the past several years, expanded throughout the Southeast and opened offices in Chicago and other new markets, Esposito said. The Southeast is now the unit’s fastest-growing region.

“When we started this journey to increase our business, less than half of PNC’s customers even knew we were in the investment business. That’s not true today,” he said.

Overall, PNC’s asset-management revenue was up 13% in 2014, to $1.5 billion, but high overhead tamped down overall profits. Esposito expects the unit’s profitability to improve now that the ramp-up is mostly over.

Expanding by hiring teams of investment advisors has been extremely expensive the past several years, analysts say. Competition for advisors hit a fever pitch last year, with banks offering outsize bonuses and guarantees to poach promising teams, Siefers said.

Growing through acquisition is similarly pricey, as shown by Royal Bank of Canada’s deal to buy City National Bank in Los Angeles for $5.4 billion, or 2.7 times tangible book value. PNC is “always looking” at wealth acquisitions, but “most of what’s out there is very, very expensive,” Esposito said.

Wealth management acquisitions can also be tricky from a cultural point of view, said Terrance Dolan, head of U.S. Bancorp’s wealth and securities division. U.S. Bank is more likely to acquire registered investment advisors rather than buy a large wealth-management shop, he said.

U.S. Bancorp’s trust and investment management fees increased 10% in 2014, to $1.3 billion. The company has invested heavily in Ascent Private Capital Management, a wealth unit focused on the very rich, which launched in 2011.

Going forward, Dolan sees the most growth opportunity in customers the bank classifies as affluent—those with several million dollars’ worth of investable assets, compared to the $50 million and more that Ascent targets.

That group—wealthy investors between the mass-affluent and the ultra-rich—could be the sweet spot for regional banks, Mutascio said. White-gloved boutique firms have the inside track winning business from the extremely wealthy, while global banks have the broad scale to appeal to the mass affluent, or those with less than $1 million to invest.

U.S. Bank counts about 2 million affluent customers among its 17 million retail customers, “but we don’t have significant penetration from an investment perspective,” Dolan said, speaking at the RBC conference.

“So we do believe that there’s a significant opportunity,” he said. “They like us already.”

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