Tuesday, 25 of September of 2018

Bank Executives Channel Mick Jagger – No Satisfaction with Wealth Management

No Satisfaction

On a sunny April afternoon I am walking down a cobblestoned street with the president of a mid-sized community bank when he casually mentions his wealth management division is not contributing much to the bottom line.

This was not news to either of us, since KaneCarlton recently completed a benchmarking and performance capabilities assessment of their Trust and Brokerage units.  However, it did lead to an open and thoughtful lunch conversation on how the results of his bank were not unique.

We’ve been hearing for years how wealth management’s contribution to the bank’s total net income is nothing more than a rounding error.  And while recognizing the many intangible benefits derived from being in wealth management, the need for tangible financial results has never been greater.

Non-performing/underperforming assets coupled with the inability to find qualified borrowers and overregulation has changed the face of banking, heightening the need to generate more income from other lines of business. Wealth management, requiring little coveted capital, seems poised to be that business.

Yet, while they try, and they try and they try, most banks are still a long way from posting satisfactory financial results.

And then, it came – The Question:  “What are other banks doing?”  Of course, my initial reaction was to launch into a medley of best practices, benchmarks and performance metrics; however, I caught myself, thinking instead, that maybe, just maybe, the opportunity lies more with the question than it does the answer.

Dr. Stephen Covey in his “Seven Habits” books reminds us to make certain as we climb the ladder of success it is leaning against the right wall.  Emulating what other banks are doing, when they are consistently underperforming their non-bank counterparts might not be the best strategy.

According to Chip Roame, Managing Partner of Tiburon Strategic Advisors, “wirehouses and regional broker-dealers still have the biggest market share of industry assets under administration by far, controlling 58 percent of those assets compared with 35 percent for independent advisors and a mere 8 percent for banks and insurance companies.”  It’s critical to note however, the wirehouse/regional and bank assets are falling as the independents gains ground.

After more than a century of operating trust departments and three decades of brokerage, banks control less than ten percent of the market.  On the other hand, the independent channel, a relatively nascent upstart controls over quadruple the market share of banks.

So instead of giving him some useless information to fire his imagination, I posed a question to him; “What do your peers from other banks say about their wealth management businesses?”

“They try and they try, and they try, but they can’t get no…”

The irony of this is banks would appear to be better positioned than their competitors when it comes to gaining and controlling market share.  In it’s simplest terms, the bank referral opportunity conjures an image of Amway on steroids.  Banks have existing client relationships, built in cross-sell opportunities and multiple distribution channels.  Yet, with all of this at their disposal they have failed to capitalize.

As a start, banks may want to begin to emulate those firms gaining market share not those losing it.  While identifying best practices at other banks is a logical approach, it is somewhat akin to the adage, “In the kingdom of the blind, the one-eyed man rules”.

The One-Eyed Man Rules

Flat and lean organizational structures, nimbleness, innovation and a steadfast focus on creating and maintaining a consistently positive client experience, through the use of strong processes are some of the common characteristics we find when working with wealth managers outside of the bank channel.

Outsourcing of key functions is another common theme.  This not only affords these independent firms the ability to deliver critical capabilities economically, but also proficiently, thus freeing them to focus on client acquisition and relationship management versus portfolio management and non-client facing operational activities.

As an example, seldom are your competitors trust companies, however, they have the capability, through outsourced relationships to administer and manage trusts, without taking on the expense of personnel, compliance and costly trust accounting systems.

Another example is outsourcing portfolio management.  Trade execution, rebalancing portfolios, due diligence and a host of other tasks (often manual/tedious) can be outsourced freeing precious time to focus more on providing clients with service and advice.  This, and investors’ demands have also led many to adopt an open-architecture approach; eschewing the notion they can ever be the world’s best money manager across multiple asset categories.  This frees time for business development while simultaneously creating a more compelling offering, thus increasing volumes and adding to the bottom line.

We see these enterprises embracing new technologies and ways of doing business such as Unified Managed Account (“UMA”) platforms, which are providing low cost ways of creating customization and scale; two words seldom used in the same sentence.

So, if you are frustrated with “riding around the world, doing this and signing that”, maybe adopting a new perspective and approach might prove very satisfying indeed.

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