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To enjoy the attention of a private banker, one generally has to be rich, very rich. Most of the major banks’ private banking groups, also known as wealth management or private client groups, are pitched at people who have net worths of at least $10 million. Lawyers at big firms are a major exception to the $10 million rule. There are, of course, a handful of top partners who have accumulated wealth on that level, but some private banking groups are offering their services as far down the firm totem pole as first-year associates right out of law school. Banks are calculating not only that law firms’ rising profits will mean more truly rich partners in the future but also that lawyers can serve as gateways to even richer clients. Faced with a mature and increasingly competitive market in law firm lending, banks now regard individual client services for wealthy partners as the prime source of growth within the legal market. In August, the fast-growing Wachovia Bank launched a legal specialty group within its wealth management unit. A month earlier, Citigroup Private Bank shook up its market-leading law firm group, putting longtime head Danilo DiPietro in a client service role and giving the reins to Lester Pataki, a 33-year-old Stanford MBA and the former head of strategy for Private Bank President Damian Kozlowski. “This is an important segment of the economy,” says Pataki, “and we’ve made a commitment to this segment.” He says 45 of Citigroup’s 135 private bankers are affiliated with the law firm group. FREE CHECKING? For junior lawyers, their firm’s relationship with a private bank like Citigroup can mean nothing more than a free checking account. For partners and their bankers, however, this relationship can mean a whole lot more. A private banker will generally take care of all of a partner’s basic banking needs, obviating the need for the partner to ever stand in line for a teller window or see a bank branch loan officer. Beyond that, the private banker is supposed to act as an access point for other financial services, especially investment products. Pataki says hedge funds and private equity placements are among the in-demand investments to which private bankers could provide law firm partners access. But some partners say they have derived minimal value from the relationship. One senior mergers and acquisitions partner at a top New York firm says the potential for conflicts of interest in his practice are so high that he avoids all individual securities and many other kinds of investments as well. He notes that most firms require lawyers to get approval for any kind of trade, a fact that encourages many partners to seek relatively simple portfolios. The M&A partner says he used a private banker from Citigroup to invest in some mutual funds that owned shares in various hedge funds, but he says the high transaction fees seemed to undercut the modest returns. He also says he was uncertain whether he was being steered toward the right investments. The banks are “going in institutions where they know a lot of the people are unsophisticated about investing,” he says. “I think [the banks] may think it’s easier to sell lawyers their own proprietary investment products rather than more high-performing ones.” Pataki acknowledges lawyers’ difficulty with conflicts, but says bankers have found ways to work with lawyers by creating blind trusts and other investment instruments. He says the fees paid by private banking clients are those associated with individual investment products. There are no charges to clients just for having accounts with the private bank, he adds. Pataki also denies that any clients are steered into proprietary investments and notes that 70 percent of the investment products purchased by Citigroup private bank clients were offered by third parties, rather than by any of the banking giant’s subsidiaries like Salomon Smith Barney. He acknowledges that the bank receives fees from the third parties for referring clients, which he says are disclosed to clients. There is widespread agreement that lawyers, even those working in high-end corporate practices, are generally unsophisticated about investing. Sanford Schlesinger, the head of the New York City trusts and estates boutique Schlesinger Gannon & Lazetera and a former partner at Kaye Scholer, says that lack of sophistication was frequently bred of lawyers’ long work hours. DO YOU HAVE A WILL? “You’d be surprised how many lawyers don’t even have wills,” he says. “They don’t have time to focus on things like taxes and estate planning.” Private bankers frequently win praise for their ability to cater to time-strapped lawyers. Seth Zachary, the New York-based chairman of Paul, Hastings, Janofsky & Walker, says most of his partners at the firm are private banking clients of Citigroup. He says the private bankers there are highly attuned to lawyers’ needs. “They are very accommodating of lawyers’ scheduling,” he says. “They really understand the mechanics of law firm economics and law firm life.” Citigroup bankers in particular are ubiquitous in the world of large law firms. Though all of the major banks pitch themselves to lawyers, most partners agree that Citigroup is the most visible one at major New York firms. One reason is that the law firm group also handles lending to firms, and the integration of that business with the individual client business has given Citigroup an edge in winning clients. Several banks have pushed into law firm lending market in recent years, with Bank of America, Wachovia, Barclays, JPMorgan Chase, and Citigroup now all jostling for market share. But law firm borrowing at most banks is handled by the general commercial lending group, without an explicit tie to private banking. DiPietro explains that firms borrowing money from Citigroup to fund expansion or maintain liquidity are often able to negotiate better rates on loans if Citigroup can simultaneously offer individual loans to partners, possibly a mortgage or a loan to cover a capital contribution. Though some partners say they suspect that firm management committees guarantee a certain number of individual partners will take such loans in exchange for a better interest rate on the firm’s loan, DiPietro says there are no such guarantees. He says, however, that Citigroup could fairly accurately predict the number of partners who would take such loans, based on historical data. Wachovia’s new legal specialty group is also designed to handle the financial needs of both firms and individual lawyers. Deborah Shore, a senior vice president at Wachovia and director of the bank’s market segmentation strategy, notes that law firms themselves are focused on becoming “one-stop shops” for legal services. “Lawyers want to be served the same way they serve their clients,” she says. Large banks are, of course, among the most desirable clients for law firms to have. But both partners and bankers say there is little connection between a firm’s choice of bank and a bank’s choice of counsel. “We have a great relationship with Citigroup,” says Zachary, “but we also have great relationships with other banks.” Shore says Wachovia marketed to firms working for the bank, but did not condition their hiring on giving business to the bank. “To the extent we do business with a firm on the business side,” she says, “we make every effort to make the firm aware of our goods and services as the main reason to do business with us.” Wachovia is hoping that these goods and services prove enticing to firms in New York, where she acknowledged Citigroup is the market leader. “We’ve really just landed in New York,” she says, “but this is very important market. New York is equal to the rest of the East Coast put together.” Marketing can play a major role in a private bank’s ability to attract clients. The image of the private bank as the financial refuge of the rich and successful had strong appeal among status-conscious lawyers, says the senior M&A partner. He says he thought many of his partners enjoyed the cachet of private banking, the feeling that they had access to a level of service not open to normal people. SHRIMP AND ICE SCULPTURES Citigroup ups the cachet quotient by hosting some of the profession’s more exclusive social events. The bank holds an annual retreat for firm leaders, recently moved from Martha’s Vineyard to New York, during which they get to interact with Citigroup grandees like Vice Chairman Robert Rubin or notable guests like Bob Woodward of The Washington Post. The bank also holds an annual dinner for partners identified as leaders or rainmakers. The senior M&A partner, a recent invitee, says all of those invited were proud to have made the guest list. “It’s this fancy dinner with shrimp hanging off of ice sculptures,” he says, “but what I noticed were all the private bankers there. I must have seen 20 or 30 of them.” That cast of bankers is subject to frequent change. Schlesinger says he thinks the idea of private banking is generally a good one for busy lawyers, but he said the practice frequently disappoints, largely because of the high turnover in the industry. “Most lawyers don’t change their socks that often,” he says. “The problem is there’s not consistency in terms of who’s there.” DiPietro and Pataki acknowledge that high turnover has been a major problem in private banks as well as across the financial services industry. They say Citigroup has tried to prevent major disruptions to partners’ financial lives by having them work with teams of bankers. “The goal is to make partners feel understood more broadly,” says Pataki, who adds that the bank tries to maintain personal relationships with clients. “We’re not going to push people into a 1-800 model of customer service.” Schlesinger says he still referred many of his clients, lawyers or otherwise, to private banks. But he says he warned them in advance that bankers would inevitably be focused on selling products that generated fees. “The trouble is everyone is selling too much product and not enough service,” he says. “I’m a big fan of service.” Anthony Lin is a reporter for New York Law Journal , the ALM publication where this article first appeared. His e-mail address is [email protected].

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