Analysts and researchers appear to agree that banks wanting to invest in their wealth management divisions would do well to focus first on providing a potent product platform and then staff up.
How many advisers should a bank hire? Do advisers belong in the branch? Should banks try to compete on salary with investment advisory firms? Answers vary.
But many observers agree that creating the right support system is a more reasonable way to approach the business than trying to find the perfect reps. Indeed, according to recent research by Kehrer-Limra, a Princeton, N.J., consulting firm, quantity can trump quality — at least to some degree — when it comes to recruiting advisers.
“People like to hire awesome reps, but even hiring OK reps will help the program,” said Kenneth Kehrer, the director of research at Kehrer-Limra. “Programs will do better with a strong sales structure, sales assistants, and more referrals, but all of that is heavier lifting. … You need more reps as the cornerstone for more growth.”
This is not to say that simply throwing more people — or compensation — at the problem will ensure success, he said. Another thing the research demonstrated, he said, is that a strong product lineup can make all the difference. The top-performing bank brokerage arms have the highest sales productivity despite the fact their brokers are paid less than those at other banks.
This finding was echoed by some other industry observers.
“You have to put advisers in the right environment in order to get the best results,” said Richard X. Bove, an analyst at Punk, Ziegel & Co. “You have to create a matrix of products. You have to create a sales environment. You have to have the right support systems and then drop the salesperson into that, and he will perform. If you don’t do that, then they won’t perform to any degree.”
Charles “Chip” Roame, a managing principal at Tiburon Strategic Advisors, a research and consulting firm near San Francisco, said advisers want to work for a firm with strong products, strong referrals, and the right culture.
“If you haven’t created the right culture, then you have a lot of high-paid brokers with no sales leads and nothing to sell,” he said. “You are putting the cart before the horse.”
The best advisers are willing to work somewhere for less money if they can “get lots of leads and good products to sell,” Mr. Roame said. “By dropping productive guys into that environment, they can thrive. A strong model is step one and then the people are step two.”
The payoff from a better platform can be considerable, according to Mr. Kehrer’s latest research, which was done for Bank of New York Co.’s Pershing LLC unit, a provider of investment platforms to financial services companies. In 2005, the average annual gross revenue produced by advisers in the top quartile of banks was 58% higher than the sales production by advisers at other banks. Despite this stronger productivity, advisers in the top quartile bank made 10% less than advisers at other banks and served fewer households per adviser, according to the research.
“One of the myths in this industry is that if you add brokers you erode your productivity, but this research shows that that is not the case,” said Mr. Kehrer. “It may be the case for some, but the best institutions overcome that.”
Mr. Kehrer said the productivity gap has been around for a long time but has widened. In 2003, adviser productivity in the top-quartile banks was 39% greater than at other banks.
Pershing commissioned Kehrer-Limra to do the survey in an effort to examine the best practices in the bank brokerage business, said Randy Reynolds, a managing director in Pershing’s bank market segment. The survey, done last summer, covered 83 banks and credit unions that account for half of all bank investment sales.
Mr. Reynolds said he was surprised to find that referrals in the top-quartile banks were only 5% higher than at other banks.
“The data made me ask, ‘If referrals aren’t higher and the territories they have are smaller, how are these advisers able to out-produce their competitors?’ ” he said. “I think it comes down to offering a broader product set and having better brokers and sales managers.”
Mr. Reynolds said the top-quartile banks are 29% more likely to use sales assistants. “A support staff helps a banker be more productive,” he said.
Mr. Kehrer said he will release a white paper on his research today at the Bank Insurance and Securities Association conference in Hollywood, Fla. He said it is the first of four white papers he has been commissioned to prepare for Pershing on bank brokerage productivity.
“We want to dig deeper and find out why the top-performing bank brokerage firms perform better than their peers,” he said. Future studies will look at marketing trends and technology.
