"It was a good morning for a chat with Jes Staley, global head of JP Morgan Chase's asset and wealth management division. The mood was upbeat when Staley, who oversees the management of more than $1.2 trillion of assets, arrived in Lexington just as JPM Chase, two years into its merger with BankOne, reported a generally rosy third quarter.
Seated at a table in the cavernous dining room of the Embassy Suites in Lexington, here was a CEO who thinks globally in stratospheric numbers related to galactic wealth. What interest could he have in the more down-to-earth affluence of the Kentucky Bluegrass region?
"Under the JP Morgan name, we tended to focus more on what we call the 'ultra high network' - clients who have investable assets north of $25 million," Staley explained. "With the Bank One merger, we have a lot of very, very good clients who have significant wealth but at lower levels than that. Essentially, we want to bring the best capabilities of both Bank One and JP Morgan to bear for a wider range of clients."
Staley estimated approximately 14,000 core clients worldwide in the "ultra high network" category. "In the above $1 million space, we have about 40,000 core clients in the United States. So, it clearly widened the client base and the wealth that we service under the JP Morgan brand."
With a significant proportion of Kentucky's wealth historically rooted in mining, manufacturing and agriculture, the generation clock is, for many, at the eleventh hour. Academic studies are finding that most family-founded firms struggle to survive once ownership has passed into a fourth generation. "One of the challenges of being in our business is, most wealthy people attain that wealth by making a concentrated investment," noted Staley. He added, however, that very few concentrated bets survive over generations. "To preserve wealth, the real key is to diversify over a broader portfolio." To underscore this, he cited the histories of the S&P 100, the S&P 500 or the Forbes 400 Wealthiest Families, which show a very high rate of turnover. "And this is because it is hard to move away from that concentrated bet that works so well either in a generation or in a certain period of time."
What of the rising basketball prodigy who comes to the University of Kentucky from a background of rural poverty, turns heads at Rupp Arena and suddenly finds himself among the nouveau riche of the NBA? "They are easy prey. People are very good at preying," cautioned Staley, adding that these can be perilous waters for both the unwitting client and a firm of JPM's stature. "We value tremendously our reputation for integrity and the quality of people that we have working for us. It's very hard for us to deal in a sector that has a lot of people who don't act in a fashion that we find appropriate. It's hard to deal with that type of client base and not rub shoulders with people you don't want to rub shoulders with."
It's actually later in life when a relationship between a successful sports or entertainment star and an institution such as JPM becomes most valuable and significant. "The motivation to bank a basketball player should not be so you can go to a game and watch them play. Hopefully, the relationship is strongest when that player is 40 and he's watching the game with you."
With the firm since 1979, Staley noted that JP Morgan has not relied on high-profile advertising or marketing, instead building its business by earning the word-of-mouth recommendations of clients satisfied with its management of key issues relating to taxes, trusts, execution of estates and liquidity. "When we get a client in the position where they can really see the value in what we have added, we've just taken another incremental step in being able to sustain the business model. So, in a place like Kentucky, where we've been doing this for a long time and have a great client base, it's a very strong platform from which to grow."
Seduced by technology to actively self-manage assets via online brokerages, wealthy individuals - particularly those experiencing newfound affluence - have been getting into trouble. According to Staley, recent history has been overwhelmed by a new reality. "If you go back 25 years, interest rates basically never moved, foreign exchange rates were fixed and an exotic investment would be going out and buying a share of IBM. Investing was a pretty staid activity," he began. "Today, there's been virtually an explosion in financial markets. Interest rates move all the time; the Fed has moved interest rates as much as eight or nine times in a single year. Foreign exchange rates float very actively. You've got vast and growing commodity markets where you can trade in almost anything you can find around you. You have stock markets like China, Russia, Brazil and India, which are taking off. You've got infrastructure investments that are happening all over the world. So, how you can invest money today is exponentially more complex, more volatile and more fascinating then it was 10 to 20 years ago."
Besides, he pointed out, few if any individuals have access to comparable resources. "We manage $900 billion in the asset and wealth management business. We're the largest investor in Russia after the Russian government. We're the largest mutual fund company in mainland China. We're the second largest real estate investor around the world today. We want to bring all the knowledge we have about all of these markets that are out there to our clients in a way that gives them very healthy risk-adjusted returns."
Staley is actively encouraging younger investors to think about saving specifically to meet ever-rising health care costs later in life. He is keeping a close and wary eye on the estate tax debate in Congress. And he pointed out that, in the meantime, there appears to be a shift in attitudes about the power to do good things.
"There does seem to us to be a trend where wealthy people are increasingly thinking that their legacies should be to take a significant portion of their wealth, put it into a foundation and support education, health care, research or the poor. I think the wealthy are growing in their desire to give back to the community."
Through two decades of mergers, Staley said, JP Morgan has created a significant global financial institution, a very large financial institution in the United States as well as a large institution in Kentucky. "What we are now committed to, whether it's in Lexington or Louisville or L.A. or London," he said, "is running JP Morgan in such a way that we reflect the very best of the legacy of this storied firm. Today's announced earnings was a real step toward achieving that."0"