On the 51st floor of JPMorgan’s gleaming midtown headquarters, 350 wealthy investors gathered last week to hear directly from Elon Musk about his public offering of SpaceX.
Seated in the front row were the billionaires Robert Kraft, the New England Patriots owner, and Kenneth Langone, the Home Depot founder.
Jamie Dimon, JPMorgan’s chief executive, told the people gathered that night that they were part of the “democratization of finance,” where individual investors are being treated the same as hedge funds and other big players. “In my view, it’s a wonderful thing to do,’’ Mr. Dimon said.
It also showcased the growing importance of the richest investors to Wall Street banks in an economy where a few individuals have accumulated vast fortunes.
Nearly two dozen banks and brokerage firms are set to reap more than $500 million in fees from this week’s SpaceX I.P.O., the largest such payout ever. But perhaps just as important — or maybe more important to some banks — is the opportunity the I.P.O. gives them to nurture their relationships with their richest clients and develop new ones.
The country’s biggest banks have been aggressively building their wealth management businesses. As individual investors are increasingly composing a larger share of the U.S. stock market, banks that give clients access to shares in one of the most hyped initial public offerings, and the top executives behind it, is one way to stand out in a sea of increasingly fierce competition, said Timothy Welsh, founder of Nexus Strategy, a consulting firm to the wealth management industry.
“That exclusivity, that velvet rope, that prestige factor validates why they can charge premium fees and have that differentiated wealthy offering as their claim to fame,” he said. “It’s very important to be able to reward your best clients.”
At the biggest investment banks, wealth management was long seen as something of a sleepy backwater, with high-flying Wall Street bankers working on large corporate deals considered the biggest stars. But the amount of fees that can be generated from clients’ personal fortunes and the feast-or-famine nature of deal-making has made managing wealth more vital for banks.
And a transfer of wealth from an aging population, expected to take place over the next 20 years, is amping up competition for these customers. JPMorgan, Morgan Stanley and other financial giants have spent billions to build out their wealth units, which account for an increasingly large share of their businesses.
“In my 35 years, I’ve not seen competition for the wealth management business any more intense,” said Mike Mayo, an analyst at Wells Fargo. “They’ve been opening branches, hiring bankers, expanding private banks.”
On Monday, Morgan Stanley is hosting an event for its wealth management clients to hear from the SpaceX management team. Last Thursday, Bank of America invited 5,000 clients to its headquarters for presentations from SpaceX’s chief operating officer, Gwynne Shotwell.
At JPMorgan’s simulcast of Mr. Musk’s presentation last week, its clients gathered across 90 bank branches. Mr. Dimon brought that idea of using the branches to Mr. Musk, said two people with knowledge of the company’s discussions about the I.P.O.
The company’s bankers have spent the past six weeks in SpaceX offices with company badges working on the strategy, the people said. (The bank has also tapped its high net worth clients to invest in prior initial public offerings.)
In his remarks to the group last week, Mr. Dimon described the 3,500 people watching Mr. Musk’s presentation on the simulcast as JPMorgan’s “top individual investors” across the United States.
There is more than flattery on the line. Mr. Musk needs the banks’ wealthy clients for his I.P.O. to succeed: High net-worth individuals are expected to make up a large portion of the $22.5 billion the company is looking to raise from individual investors to support the $75 billion deal.
Initial public offerings typically “pop” in first day trading, giving investors who bought into the deal an easy way to turn a big profit by selling their shares. The fact that SpaceX, which analysts at Morningstar say is worth $780 billion, is looking to be valued at upward of $1.75 trillion may not give it much room for growth when it hits markets.
But Morningstar’s analysts also say shares of SpaceX may continue to trade up, at least in the short term, partly because of a new Nasdaq rule that will effectively force index funds to buy its shares a little after two weeks following its listing.
SpaceX is also looking to sell to everyday investors with accounts at firms like Fidelity and Robinhood. Many of the brokerages that focus on a broader client have restrictions on I.P.O. trading in the weeks following a listing. For example, Fidelity temporarily blocks investors from future I.P.O.s if they trade just once 15 days following a listing.
JPMorgan’s wealthy clients are under no such restrictions, the two people with knowledge of the I.P.O. discussions said.
SpaceX and other mega I.P.O.s expected this year, like OpenAI and Anthropic, are likely to create a cadre of newly wealthy individuals, including the companies’ employees, as they eventually cash out their shares in the private companies going public. This new wealth presents another big business opportunity for the banks.
“They’re looking at the I.P.O.s not as just the fees that they earn, but with a multiplier effect for them to serve all the new millionaires, in some cases billionaires,” Mr. Mayo said.
The economics of private wealth management is coveted by banks in part because it does not require banks to invest their own cash. Banks earn management fees, which are often based on a percentage of the amount of money a client invests. Banks can also sell others services to these clients like estate planning and extending credit lines backed by their homes, artwork or stock holdings.
“That’s the beauty of wealth management,” said Mr. Welsh, who previously worked at Charles Schwab and Merrill Lynch. “It’s infinitely scalable.”
Those dynamics explain in part why banks have been building out these lines of work. In 2020, Morgan Stanley said it was paying $7 billion to acquire the wealth management firm Eaton Vance and $13 billion for the discount retail broker E-Trade. Its wealth and asset management business is now about half the bank’s business.
At JPMorgan Chase, which acquired First Republic bank in 2023, wealth advisory makes up about 13 percent of its business. The bank, like many of its competitors, has been focused on using a “one firm strategy,” using all of its arms for business development, Mr. Mayo said.
The bank now has more than $4.5 trillion in assets across its businesses catering to individual investors. Marianne Lake, the bank’s chief executive of consumer and community banking, laid out the bank’s wealth management ambitions at the company’s investor day last year: “We are sitting on a gold mine,” she said.
