Northern Trust Corp. has weathered a number of storms in its 128 years, including the Panic of 1907, the Great Depression, the Great Recession and the floodwaters of the Chicago River. The company’s headquarters, built in 1906, has stayed bone dry during major flooding because its foundation goes down to the bedrock. That’s also why for nearly 90 years, city engineers have used the building’s cornerstone as a benchmark to measure the height of all other buildings in Chicago.
“What we like about it is this sense of strength and stability, bedrock, core values,” says David Blowers, president of Northern Trust’s wealth management national services and a 35-year veteran of the company. “We’re still the same firm in the same businesses in which we were founded.”
The Northern Trust Company, as it was originally called, was founded as a bank in 1889 by Byron Laflin Smith. On its first day in business it opened seven accounts with $137,981 in total cash deposits (roughly $3.5 million in 2017 dollars). But wealth management was also in the bank’s DNA since its early days. For more than a century, it’s been honing its expertise in special services beyond banking that help clients take care of their families, estates, legacies and businesses.
As of June 30, Northern Trust’s wealth management unit—which now contributes about half the firm’s net income—had $266 billion of assets under management and $603 billion of assets under custody/administration. Northern Trust was named best private bank in the U.S. last year (and most of this decade) by the Financial Times Group’s annual global private banking awards.
“Wealth management is about so much more than stock picking and asset allocation,” says Steve Fradkin, a 32-year Northern Trust veteran and president of its wealth management unit. “When we think about holistic advice, it’s about integrating our clients’ needs across brokerage, banking, investment management, planning, fiduciary and other needs.”
Northern Trust’s scope of services is broader than what most wealth management firms offer. Beyond its traditional advice (such as trust and fiduciary services, estate settlement and guardianship), the firm’s specialists educate wealth creators and their families about how to manage and transition their wealth, and this includes preparing families to be successful inheritors. They also help families develop the right governance structure and philanthropic strategies to meet their goals.
Experts at the firm can also help business owners manage non-financial assets that are tied to niche industries. For example, in the oil, gas and mineral sector, Northern Trust manages 15,000 properties with the help of its in-house staff that includes former industry professionals. In agriculture, another sector that involves many family-owned businesses, Northern Trust manages nearly 2,000 properties, including 170 farms, 330,000 acres of timberland and over $2 billion worth of commercial and residential real estate.
Suzanne Shier, who co-leads Northern Trust’s wealth planning advisory services practice, was surprised by the scope of services at the company when she joined it in 2012. She’d just left behind a 26-year law career in which she’d observed Northern Trust from the outside.
Many other institutions consider these services ancillary and are “not making the same kind of investments in talent and in technology,” she says. Instead, they’re farming it out.
All Hands On Deck
Integrating this wide range of advice—in order to align clients’ business plans, family plans and wealth plans—requires a huge collaborative effort, says Blowers. So in April, he was tapped to lead national services for the wealth management unit. Blowers (who reports to Fradkin and last headed up the eastern region for Northern Trust’s wealth management unit) now oversees members of its banking, advisory and trust, sales, investment management and client support services teams.
Blowers’s national services umbrella is pulling together the firm’s existing wealth management resources “in a way that we haven’t before,” he says. “The real gestalt, the ‘one plus one equals three’ opportunity in this, is just to more effectively communicate across our own internal boundaries and areas.”
It’s already helping. When he recently assembled about 60 members of his team (his direct reports and all of their direct reports), he says, “Somebody said, ‘I learned stuff in that meeting that I didn’t even know we did.’”
There’s never been a more critical time to get all hands on deck in a highly organized fashion. Clients need even more help now with money management and estate planning, says Fradkin. “In the old days it was 60/40 or 40/60 in [stock and bond] asset allocation; today it’s more complex.”
To be sure, clients’ lives have gotten more complex. Northern Trust has observed some common themes. Millennials and the older generations need more help communicating with each other. Families and their wealth have also become highly mobile in an increasingly global world.
At a time when some firms are intentionally exiting the international space because of its complexities, says Shier, Northern Trust is getting more entrenched. The rise in the number of foreigners studying, investing and buying real estate in the U.S. has stepped up the need for advice that crosses borders, she says. For example, she notes there are special considerations in planning a wealth transfer when one spouse isn’t a U.S. citizen.
Dave Fox, who heads the firm’s global family and private investment offices practice, says the majority of Northern Trust’s family office clients are U.S.-based but many have become multi-jurisdictional. To better serve them, Fox, who ran a conference titled “Families Without Borders,” says his group has boots on the ground in London and Abu Dhabi and also services family offices out of Asia.
Fradkin adds that Northern Trust often serves family offices on an à la carte basis because ultra-high-net-worth families tend to have assets all over the globe. Typically, there is a “tipping point where people say they need to get things together,” he says, or at least get custody, reporting and other analytics centralized. It’s usually driven by some event—when somebody sells a business, gets married or has kids.
Collecting Clients
According to Fradkin, Northern Trust’s wealth management clients include about 20% of the Forbes 400. In a typical year, more than half of new Northern Trust clients have investable assets exceeding $10 million. The firm still serves many of Chicago’s large iconic families, although it won’t name names. But the majority of its clients are newly created wealth so, he says, “We get a catbird’s seat on wealth creation in America.”
Over the last five years, family offices have been the fastest-growing client trajectory in Northern Trust’s wealth management unit, says Fox. The global family offices group serves about 450 families, with an average net worth of approximately $850 million, and is adding 20 to 25 new families a year. Most clients form great wealth by owning and operating their own business, he says.
Fox arrived at Northern Trust in 2012 after more than 30 years at JPMorgan Chase & Co., where he was most recently vice chairman of investment banking. As an investment banker, “You tend to ask a lot of questions and you lead with advice,” he says. The same goes with Northern Trust clients. “We don’t batter them with product,” he says.
His group, which incubates new clients before they have a big liquidity event, interviews families to determine their pain points and how to help them. “If you’ve met one family office, you’ve met one family office,” he says. “They’re like snowflakes.”
Fox’s group also refers a lot of clients for family education and governance services where family members can learn to work together to achieve their goals. “We develop all that connectivity for them so they can maintain that sustainable family office and travel through time with multi-generations,” he says.
Blowers says Northern Trust is also starting to focus more on the lower end of its target market for wealth management clients (those with $1 million to $5 million in investable assets) because the demographics are strong. Across the U.S., 6.5 million households have $1 million or more in investable assets, he says, while 218,000 households have $10 million or more in investable assets.
He also sees more opportunities for the firm’s foundations and institutional advisors group (which he says essentially acts as an outsourced CIO for small foundations with $10 million to $200 million in assets) because there are nearly 10,000 foundations of this size across the U.S.
Northern Trust seeks to deepen and broaden its relationships with existing clients, who are its best sales helpers, he says. The firm has also become much more “deliberate and aggressive,” he says, in elevating its brand. After nine years of sponsoring the Northern Trust Open in Los Angeles, it moved on this year and, replacing Barclays, signed a five-year agreement as the title sponsor of the PGA Tour’s FedExCup playoffs tournament held in the New York metro area. The tournament was first played under its new moniker, “The Northern Trust,” in August.
“New York is the greatest wealth market in the world,” says Blowers. “We’re not as well known there as we should be, as we will be and as we obviously aspire to be.” Of course, “the wealth demographics of golf are unbelievable,” he adds.
Soothing Nerves
Recently, Northern Trust’s wealth management clients have been asking a lot of questions about the future of the estate tax, anticipated income tax rates and the possibility of retroactively repealing the 3.8% net investment income tax that’s tied to the Affordable Care Act, says Shier.
“We can’t make the unknown known for them,” she says, “but we can help them consider what the implications will be” under the possible tax reform scenarios and their personal circumstances.
Last year, Northern Trust’s wealth planning group was brought in to work on dedicated projects for more than 1,000 client issues. (That figure doesn’t reflect a lot of more spontaneous interactions, she says.)
For example, one Northern Trust client called up in a panic to say her family would be losing its health insurance benefits after the sale of its business—something no one had anticipated. Shier found a health consultant to work with the family and is now giving a lot of thought to the convergence of wealth transfer and health benefits.
Another thing she and her colleagues say differentiates Northern Trust from other firms is the customized retreats they develop and conduct for families and branches of families. The retreats focus on clients’ specific challenges, such as educating the next generation to be more financially responsible or revamping philanthropic goals.
Marguerite Griffin directs Northern Trust’s philanthropic advisory services, which she launched a decade ago to help the firm’s clients think about tax-advantaged charitable entities, to think about how to incorporate charity into their overall wealth transfer planning and to think about how to engage their children.
While she has always helped manage transitions between generations, lately she’s been meeting more often with young people “who are trying to get their voices heard,” she says. “They need a translator.” Griffin, an attorney, has also been having a lot more conversations with clients about impact investing.
In any given year, her office may work with more than 100 clients “in a significant way,” she says, referring to clients who make six- or seven-figure gifts or establish a permanent giving vehicle, such as a foundation.
If a family is new to charitable giving and philanthropy, Griffin consults with them for 12 to 18 months because she likes to take them through a full cycle of grant-making before allowing them to experience and experiment on their own. The grant making cycle includes identifying and vetting charities that fit one’s mission statement, and approving and monitoring grants. She also helps clients negotiate grant agreements. Other clients may choose to have an account with Northern Trust’s donor-advised fund.
Finally, no profile on Northern Trust would be complete without mentioning the firm’s pioneering role in the goals-driven investing process. This was an outgrowth of lessons learned during the 2008 financial crisis.
Investors panicked then because they didn’t know if they’d have enough money to meet their goals or what their safety buffer was, says Katie Nixon, chief investment officer for the wealth management business at Northern Trust. “Everything became sort of this fungible bucket of assets, and when they saw it all going down at once,” she says, “many investors ran for the hills at exactly the wrong time.”
The firm’s goals-driven investing method involves technology that enables advisors to put a price tag on a client’s financial goals, such as college and a sustainable lifestyle. Clients can see it and “it has been the most amazing confidence builder,” says Nixon, who joined Northern Trust in 2004. In addition, “We are getting to know our clients in so much depth,” she says. “We are hearing about their hopes, their dreams, their grandchildren.” Spouses are also having more meaningful conversations with each other.
With the goals-driven process, every asset is placed in a client’s portfolio to very purposely fund goals that are reviewed every year. “It’s not just a 60-40 portfolio set and forget,” she says.
Nor will Northern Trust let its wealth management clients forget that “with great wealth comes great responsibility,” says Fox. That is, if they want to keep it.