The accumulation of wealth by aging Baby Boomers in America presents as much frustration for banks as it does opportunity. Conventional wisdom is that banks can use retail investment management services to sharpen customer relationship management and increase customer profitability. Even so, banks are finding the path to investment management nirvana riddled with tricky customer preferences and little studied-let alone practically applied-consumer buyer values as they relate to investment purchasing decisions.

What's clear is that banks' growing interest in determining who their customers are and what investment products and services they need and will buy is prompting a virtual convergence of private banking, trust and brokerage services. "They really are different products that satisfy the customer's needs at different stages of life and can be bundled together," says Patricia Tsien, managing partner in the financial markets strategy practice of Andersen Consulting. "That, fundamentally, is very different from the way banks are delivering services today."


The convergence rationale is that distinction between the separate silos of private banking, trust and brokerage is irrelevant from a retail customer's perspective (The caveat: Banks must still provide adequate disclosure of risk for non-FDIC insured product.). What matters to customers is that their bank deliver products and services that meet their investment needs. Sources contend that the delivery of investment products and services should be seamless to customers if banks are to prosper from wealth management opportunities.

A handful of banks is moving in that direction from both virtual and organizational perspectives. KeyCorp, First Union Corp. and Charles Schwab, for example, have formed Web-based alliances to distribute each other's mutual funds-Victory, Evergreen and Schwab One's supermarket of no-load funds, respectively-piggybacking on their competitors' strong brand. And some institutions are positioned to create umbrella organizations that, from a strategic point of view, unite the efforts of the trust, private banking and brokerage businesses. This enables the institution to better leverage existing customer relationships. First Union Brokerage Services, Inc., for example, falls under the Charlotte-based bank's Capital Management Group, which also oversees its Private Bank and First Investment Advisors. And NationsBank is merging its private banking and trust units in a bid to grow revenue against new delivery models. "Banks are finally starting to get their acts together and not think in terms of smoke stacks to deliver product, but are trying to integrate it into one process where the client can work with one person-or a couple of people-and feel comfortable that their investment and insurance needs are being served," says John McCune, president of Norwest Investment Services, a section 20 subsidiary of Norwest Corp., based in Minneapolis.

Proponents of convergence argue that it's how a bank focuses on customers that will determine whether the convergence is physical rather than virtual-or a combination. "In other words, if you don't have a group that has responsibility for dealing with the end customer and bringing these products to the end customer, and you continue to sell to the customer through individual product silos, that's where a (bank) has an issue," says Tsien.

At Norwest Investment Services, delivering the right product mix to customers is the result of needs-based selling, says McCune, a process that identifies opportunities for Norwest to develop private banking and trust relationships with brokerage customers. And the push in wealth management is extending beyond the Baby Boomers. "That's why I embrace planning and profiling so much; out of that, you're not having a product sale, but a needs-based sale. What is the client really looking to do?" he says.

Still, customer preferences could derail even the most aggressive retail investment management strategy embarked upon by banks. An institutional investment preference study conducted by Andersen Consulting in conjunction with PSI, for example, found that when consumers were asked whom they think of as their primary providers, their responses segmented between full-service brokerage, discount brokerage, insurance company, private bank, trust company and commerical bank. Even more, when these same 2,000 consumers spanning all income levels were asked to characterize their ideal service provider and how close their current provider was to the ideal, full-service brokers came closest to the ideal (see chart).

For banks, the most troubling aspect of market research that focuses on buying behavior is that it underscores the absence of loyalty among consumers of investment products-notably that "money is money" regardless of which institution helps them to accumulate it. After conducting its own research, one Andersen bank client, for example, found that as soon as its customers accumulated any form of wealth, they left for full-service brokerage firms, according to Tsien. The bottom line: "Banks have to focus on knowing who their customers are and why they're buying what they're buying," says Tsien. "What are the product features that they value, and why are they leaving to go to a Merrill Lynch?"

profitability pitfall

To this end, Andersen Consulting is working with The Advisory Group, a market research firm based in Washington, D.C., on a study that will better gauge consumer buyer values as they relate to investment purchases. The goal of the project is twofold: to determine the future of advice for affluent investors (which individuals want advice versus those who want information to transact on their own) and the future of channel management (how or if the different silos should be integrated).

Research of consumer buying behavior is just a start. Differentiation in the marketplace depends on banks' ability to deliver product that meets the specific needs of their customers. This means building comprehensive profiles of existing customers to determine the extent of their investment relationship with the institution, ascertaining what investment products are desired and their propensity for greater profitability.

A multi-tiered approach to drive customer profitability is employed by Norwest Corp., which uses a householding system to assign profitability based on numbers of products sold and assets. "Through data mining, we can target clients that would have a higher propensity to buy the kind of products that we offer," says McCune. "We sit down with the bankers to establish a list of people that we can get in front of to see if we can be of service to them."

The catch is that some banks structure tiered customer profitability strategies that end up becoming "profitability pitfalls." While products should be designed for specific customer segments, tiered profitability schemes can be dangerous. "If you take all accounts with assets under a certain size and put them into a particular delivery model, and all accounts that have assets of this size into that one and whatever, how do know that you have all of their assets?" says Tsien. "Most research shows that you don't. Therefore, you could be tiering down a customer that has a lot of assets-they're just not within your institution."

If a bank is using a tiered profitability approach, Tsien says it should be a transitional step to changing customer expectations and gathering better information to design product, services and delivery models to more successfully meet customer need.

The great push in retail investment management isn't limited to the usual suspects. Griffin Financial Services, a subsidiary of Irwindale, CA- based Home Savings of America, is planning to offer brokerage capabilities to customers at the bank's Web site in the next year, says president Bill Hawkins. Apparently, money is indeed money.


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