The recent era of record stock market performance should be a dream come true for banks aspiring to sell investment products through their branch networks.
After spending years beefing up their product lines and licensing staff, banks should be flexing their powerful branch networks to win major revenues and customer balances.
But while a few standout players’ wealth management distribution strategies are succeeding, many others are experiencing frustrating results. In other words, the rising tide has not lifted all boats.
This means banks should reassess their wealth management strategies. If the retail branch distribution model isn’t paying off in peak market conditions, when is it going to bear fruit?
To be sure, a few major regional banking companies have made remarkable progress. Leading players are enjoying healthy growth in assets under management and revenues worthy of inclusion in investor presentations. These companies are proof that investment products can be successfully distributed through retail bank branch networks.
For many other retail banks, however, the picture is disheartening.
As competing regional brokerage firms and independent investment advisers rake in investor assets by the truckload, many banks struggle to grow at half the market pace.
Some banks should flat-out drop the branch distribution model for wealth management. Others need a different approach.
Many banking companies should consider alternative distribution methods, such as acquiring or expanding separate investment management operations.
The fundamental question in wealth-distribution strategy is the real growth potential with customers. Considerations include the bank’s overall brand and demographic appeal, positioning in favorable regional markets, and customer relationship potential.
Part of the reality check is acknowledging where battles likely won’t be won. For example, there’s less than meets the eye in the “mass affluent” market, which consists of consumers who, though not exactly wealthy, have substantial investment assets.
Customers continue to prefer nonbank investment conduits. And many investors continue to park their assets in retirement accounts. That makes it difficult to generate asset balance levels needed to justify the effort to win mass-affluent customers.
Instead of fighting a losing battle on the retail side, some banks might do better by focusing on expanding established wealth management relationships with commercial customers, including corporate, middle-market, and small-business customers.
Then there’s the distribution model issue.
Is it better to build branch sales teams licensed to sell on the spot, or to create a well-oiled and incentive-rich referral system that feeds business to a separate subsidiary? Though former option has gotten most of the attention lately, the latter may well be the most pragmatic approach.
We have already seen notable examples where banks have preserved the operating independence of acquired investment management and advisory companies to good effect. The battles over operational integration were never fought.
Instead, acquiring banks simply acknowledged that many wealth management clients like doing business with firms that they perceive to be grounded in the traditions of investment management and proceeded within that framework.
Make no mistake: There are substantial opportunities for more bank acquisitions of regional brokerages and investment advisers. Instead of investing more time and resources in branch distribution of wealth management capabilities, some banks should shift their priorities toward nonbank acquisitions and leverage the talent and customer relationships.
Leadership is an equally important issue. One telling expression of corporate priorities is the placement of the brightest talent. As banking companies reaffirm their commitment to wealth management at the board level, it’s important to follow through by placing an A-level executive at the helm.
At the minimum, market conditions signal that it’s time for many banking companies to rethink their commitment to the investment business.
Banks in this market should ask themselves if they have the right leadership and distribution system and are targeting the right prospects.
With investment valuations hovering at peak levels, it’s difficult to see how lagging banks in this marketplace will make up lost ground if they haven’t done so by now. Many should rethink their game plans, because conducting business as usual will only continue to produce lackluster results.
