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Northern Trust Is Atypical Bank
It’s a bank in that it makes loans, has deposit accounts and operates branches, but its major focus is trust and investment services.
“The typical bank is primarily a bank and, typically, less than 15 percent of its revenue would come from trust and investment management,” said James McKay, chairman and marketing director of the West Michigan office.
Atypically, this $40 billion, Chicago-based bank derives 78 percent of its revenue from the investment world.
Eight trust and investment management veterans formed the original staff that opened the office here in February 1999. At the time the office wasn’t officially a bank; it just had trust powers. It opened as a bank in December of the same year.
Northern Trust normally opens a new office with three or four people to start, McKay recalled, but the company made a big commitment in the case of Grand Rapids, “and they made it based on the fact that we sold them on the idea that we could be very successful here,” McKay said.
Since then office staff has grown from its original team of eight to 16. In conjunction, it recently doubled its office space, expanding from 4,000 to 8,000 square feet in the Waters Building on Ottawa Avenue downtown.
The company’s banking branch occupies an additional 2,500 square feet in the same building.
Since its founding in 1889 as Chicago Bank, Northern Trust has maintained concentration on trust and investment services in two core markets: the personal financial services market and the corporate and institutional services market.
Of Northern Trust Corp.’s 82 personal financial services offices in 12 states, the West Michigan office is its most successful. By May of its second year in business, the office had grown from zero to more than $1 billion under administration and management.
“We have the distinction of being the most successful office that Northern has ever opened,” McKay said. “It’s the fastest any office has ever achieved $1 billion.”
McKay attributes that success to the company’s “exceptional staff.” Also contributing to the office’s early success was the ability of staff members to attract many of the clients they had worked with before, he said.
He describes the relationship between Northern Trust staff and clients as “a mutual admiration society.” Locally, the company has experienced no turnover and clients have been able to stay with their original investment officer, he pointed out.
“That’s very important when you’re dealing with money — to be able to have that trusted adviser that stays with you for an extended period of time,” he added.
Northern Trust looks for clients with a threshold of approximately $1 million to invest. The bank’s average client relationship is in the $3.5 million range.
“That allows us to give the quality of service we really feel is so necessary. We don’t have a lot of small accounts that take up a lot of our time. We really concentrate on significant dollars and really spend a lot of time working with our clients.
“We don’t look upon it as being necessarily exclusive; it’s just that we know from experience that in order to give the quality of service that we give, we need to have people who as clients have a reasonable amount of wealth.”
Its banking side is fairly small, with one office in town, a couple of lending officers and a couple of tellers. But its trust and investment side is already large after just over three years of business in Grand Rapids.
A significant percentage of its banking clients also are trust and investment clients, but Northern Trust is not a bank for the masses, McKay said. That requires a lot of branches.
“We don’t have teller windows; we have desks that people sit at. It’s just a very nice way to do business.”
The West Michigan market is great for banking and exceptional for investment management, he said.
Though Northern Trust competes, to a degree, with other banks locally, its real competition is the investment management and brokerage firms.
The company attracts new clients, first and foremost, from brokerage firms, from other trust and investment management companies and from people who have previously managed their own money and now want some help.
For the 10 or 12 years that the market continued to climb, anybody could have been a money manager — even mediocre money managers were making money, he said.
During the last couple of years, Northern Trust has attracted a lot of clients who have gone through “the search for quality,” he said. They’ve experienced a fairly deep depression in their assets and are looking for somebody who can manage their investment portfolio, maintain it and grow it without a lot of risk.
He characterizes Northern Trust’s investment management style as “relatively conservative.”
“We don’t take a lot of risks. We certainly manage a lot of stocks but we also have a lot of bonds,” McKay explained.
“We have a distinction in that we manage individual portfolios; we buy stocks and bonds for the portfolio rather than mutual funds. There are times when we have mutual funds in our clients’ accounts, but predominantly we buy individual stocks and bonds for our clients.”
Northern Trust does very little advertising, relying basically on word of mouth. McKay said the bank gets numerous referrals from existing clients, from law firms that do trust and estate work and from accounting firms.
McKay began his banking career in 1961 with First Chicago NBD Bank, then Union Bank & Trust Co. and now Bank One, as a management trainee. He worked his way up through a number of positions, including credit analyst, commercial lender, manager of correspondent banking and, later, manager of branch administration.
Prior to taking over as chairman of Northern Trust’s West Michigan office, he was senior vice president and manager of trust and investment services for 13 FCNBD offices in Michigan.
Every one of those new jobs presented a unique challenge, he said, and the opportunity to shape Northern Trust Bank West Michigan into a very successful bank was another big challenge.
In a world of consolidation, mergers and newly created banks, McKay thinks it’s remarkable that Northern Trust is the same organization it was 113 years ago and has managed to maintain its independence.
“There aren’t a lot of institutions that can say that; most of them have gone through a lot of changes due to mergers and acquisitions. I think that’s one of the huge strengths that Northern has. It has a kind of rock bottom structure; it knows what it is and knows what made it successful.”