Insights | 03.28.18
What’s Happening to Referrals?
A recent Wall Street Journal
article highlighted the impact of reduced foot traffic in bank branches
, with FDIC data revealing 1,700 branch closings from June 2016 to June 2017.
We checked the FDIC data for the long-run trends and found that the number of bank branches had gone up almost every year between 1996 and 2008, held steady between 2008 and 2012 and then began shrinking by about 1,000 branches a year since. Nonetheless, the number of branches is up 38 percent since 1996. The number of banks shrank from 9,530 in 1996 to 5,112 in 2017, but they have actually added branches. However, that’s not to say that branch traffic isn’t declining.
With fewer customers visiting branches, what is happening to referrals from bank branch staff to the bank’s financial advisors?
Tracking the raw number of referrals on a bank-by-bank basis over time is problematic, as banks have been combining and combining again, but we can get some perspective on the trends in referrals by examining what proportion of a bank’s customers are being referred each year. In 1996, banks with their own broker-dealer referred 1.75 percent of their customer households to their financial advisors. Household referral penetration was down 11 percent in 2006 but up 3 percent by 2016.
Referrals have been a core competitive advantage of the bank insurance and securities community and appear to have been surprisingly resilient against the headwind of bank mergers and electronic banking. We’re obtaining 2017 referral data as you read this, so we’ll see if the recent acceleration of branch closings has impacted referrals.