Missed Opportunities Abound in the Bank Channel

Bank advisors should consider themselves lucky.

They work in one of the two areas of the banking business that is expected to grow over the next several years. By 2014, U.S. retail banks' revenue from their wealth management units is expected to top $80 billion, versus $65 billion in 2009, according to the consulting firm Booz & Co.

But banks haven't exploited the opportunity too well. From 2009 to 2010, banks' and insurance broker-dealers' assets under management shrank to $600 billion, less than 5% of the $14.5 trillion wealth management market.

Meanwhile, discount brokers grew to $2.5 trillion, cornering 19% of the market. Also growing in that time were registered investment advisors, which command 13% of the market, and private banks and trust firms, which command 8%.

John Rolander, a partner at Booz, said he's "personally puzzled by" the decline in the bank channel's market share. "The bank brokers are kind of spoon-fed a client base," he said at the Prudential Wealth Management Leaders Forum in New York.

Banks have, however, been too dependent on selling annuities, Rolander said. As annuities "fell off in being an attractive fit for clients, their revenues dropped, their assets dropped and their share dropped," he said.

Banks can turn their situation around by switching to a fee-based value proposition, Rolander said. "It will serve them and their clients well," he said, in the same way it benefited private banks and trust firms.

Banks' unique access to bank customers also works in their favor, Rolander said. Yet they have barely scratched the surface.

Consider M&T Bank in Buffalo, N.Y. Only 17% of all the client households that M&T serves have an investment product. And only 2.5% own a bank insurance product, Kenneth Thompson, senior vice president and division head of M&T Investment Group, said at the forum.

On average, bank customers holding at least one investment or insurance product contribute 60% more to the bank's bottom line than customers who do not. They also contribute twice as much per month as households holding only traditional bank products, Thompson said.

M&T Bank's experience is consistent with a study from Consumer Financial Decisions. It found that only two out of 10 mass-affluent households (those with investable assets of $100,000 to $1 million) have purchased investment and insurance products from their banks or credit unions. Brokerage and insurance customers not only have higher savings and checking account balances, but are also 34% more likely than other customers to stay with their current financial institutions, even if they receive better offers, the research found.

Banks are making strides. Last year revenue from the sale of investment and life insurance services at banks and credit unions jumped 10%, led by a one-third increase in sales of advisory services, according to a report from Kehrer Saltzman & Associates.

Some banks are doing more than simply pursuing bank customers for additional business. Some are trying ways to serve clients across all wealth tiers by developing multiple service models, said Gauthier Vincent, senior executive advisor and partner at Booz. "It's the dream of every bank," he said.

With its May 2011 acquisition of Wilmington Trust of Delaware it captured the full continuum of clients: from the mass-affluent with up to $3 million of investable assets to single-family offices with more than $250 million.

Wilmington Trust had "a phenomenal model for ultra-high-net-worth and high-net-worth clients … and we had a very robust lower-end part of the channel, being the broker-dealer," Thompson said.

Before the acquisition, M&T Bank's trust, wealth management and corporate service business lines contributed 15% to fee income. After it they contributed 34%. "Overnight we became the No. 1 contributor to fee income for the bank," Thompson said.