Insights | 01.17.18
Capturing Customers’ Investible Assets: Glass Half Full or Half Empty?
For decades we’ve held the position that the investment services performance of a bank or credit union should be assessed relative to how well it has penetrated its opportunity – all those customers, most of whom say they would prefer to invest where they bank, and trust banks and credit unions far more than any other kind of financial services provider. But what yardstick provides the best measure of penetration? Over the years we’ve used consumer deposits, or the number of retail customer households, but both measures are flawed, and subject to misinterpretation. Clearly, the best measure of an institution’s opportunity is the amount of investible assets held by the institution’s customers, but that information has not generally been available to the bank insurance and securities community.
Through Kehrer Bielan’s collaboration with the Consumer Financial Decisions Group of Strategic Business Insights, we have access to the MacroMonitor
, the gold standard of consumer financial databases. This year’s bi-annual survey includes very detailed information on the financial behavior, preferences, and finances of over 4,200 households, including their investible assets.
With these data, we are able to estimate with a high degree of accuracy how much of the investible assets of their customers or members financial institutions have captured.
The investment services unit in the typical large bank broker dealer has only 3% of its customers’ investible assets under management. The institution’s Trust and asset management businesses have captured an additional 2%, while the bank’s customers keep 12% of their investible assets on deposit with the bank. So the entire banking enterprise has captured only 17% of its customers’ investment wallet.
But that is the perspective of an individual institution. Penetration looks better from the perspective of the entire bank insurance and securities community. Households tend to patronize more than one depository institution, so a bank’s customer might have actually invested at another bank. Indeed, the data indicate that a customer is just as likely to have an investment relationship with another bank as it is with your bank.
That means that the overall investment services penetration of investible assets for all banks and credit unions is 4%. Taking into account their Trust and asset management businesses and bank deposits, financial institutions manage just over half of US households’ investible assets.
The reader can decide whether this glass is half full or half empty, but there is clearly a great deal of upside potential for the banks and credit unions that seize the opportunity.