$6 Million an Hour in Lost Business
Everyone knows banks are losing deposits to mutual funds and brokerage houses. But just how much?
David Ross Palmer, a New York-based private banking consultant, estimates that banks lose $6 million an hour in potential private banking business.
He also offers another way of looking at the drain. The average bank forgoes $20 million a year in potential private banking revenue for every 100,000 households in its customer base, he estimates.
Where the Money Goes
The lost revenue is snapped up by aggressive mutual fund sales people or is left untouched in conventional deposit accounts, Mr. Palmer said.
That last category should gall bank managers. Mr. Palmer said only 15% of a typical bank's qualified clients get private banking services. The best retail customers, he added, generate $1,000 in income, while the average private banking customer brings in at least $5,000.
A recent survey of 79 of the top 100 U.S. banking companies by Mr. Palmer's firm found that private bankers spend less than 15% of their days trying to attract new clients. By contrast, an account executive at a brokerage devotes 50% of each day to making sales calls.
The consultant based his calculation on figures from PSI Inc., a research firm based in Tampa, Fla. It estimated that about $12 billion in untapped revenues from wealthy clients is left in retail banking accounts each year. Mr. Palmer divided $12 billion by 250 working days, then divides by each day's 8 working hours to get his $6 million estimate.
Regardless of the methodology's precision, bankers readily admit that they fail to mine vast deposits of wealth for credit and investment business.
"I would agree that there's an enormous amount of business that remains to be tapped," said Susan Dick, director of sales for the private bank at Bank of Boston Corp.
The bank is reorganizing its private area to attract more clients. For example, Ms. Dick said, next year, the bank will team a private banker with a corporate lending officer, hoping to win personal accounts from customers whose companies take out corporate loans.
Aggressive Tactics Backed
Mr. Palmer said he approves of such tactics.
"In bank after bank, I found that top executives were saying that private banking is one of the most important initiatives and that we should all support it," he said. "But what's actually happening is that, in most banks, the tough-minded decisions needed to flatten turf barriers and improve sales production are not being made."
Mr. Palmer said banks must encourage officers of different divisions within the institution to cross-sell private banking services if they are going to keep wealthy clients.
A recent study by Phoenix-Hecht/Gallup found that almost half the potential customer base for trust services needs more information before deciding whether to set up a trust.
The North Carolina-based research organization found that affluent baby boomers particularly need educating. "Young, high-earning individuals accumulating assets at a rapid pace still need guidance," the study reported.
Of 700 affluent individuals interviewed, 45% said they would want more information before setting up a trust.