04.22.20

Bank Investment Services Revenue Expected to Fall 20%-30% in Coming Quarters

by: The Kehrer Bielan Team

The consensus of the discussion during the recent Kehrer Bielan teleconference on best crisis management practices is that market volatility, the current disruption in employment and branch operations, and the shift to working with clients remotely, will result in 20-30% lower revenue in the coming quarters. Members of the bank insurance and securities community dialed in to hear some of their peers share their experiences managing the disruption.

At a time when many firms are under pressure to deliver more fee income to their host institutions, this substantial shortfall below plan will not sit well with the top of the house.

The findings in BISA’s study – Smart Investment:  Evaluating the Total Return on Investment Services to the Banking Enterprise – can help. The study found that households that have an investment relationship with their bank or credit union exhibit greater loyalty to the institution, use more banking products, remain customers longer, and hence contribute significant income to the core business of the banking enterprise. The findings suggest that investment services will be a key tool for banks to leverage as they fight to retain customers, and their deposits, during this period of economic upheaval.

The upshot is that establishing an investment relationship with a banking customer changes the landscape for overall financial advice going forward. Only about 11% of households that look to professionals for financial advice consider a banker or bank-based advisor to be their primary advisor, about the same percentage of households who look to wirehouse or full service stockbrokers. Independent financial planners are considered the primary advisor for 29% of the population that use a financial professional. 

Banking customers who are also investment clients are nearly four times more likely to consider a bank officer or financial advisor as their primary financial professional than customers without an investment relationship are. They are also 18% more likely to turn to a bank advisor than an independent financial planner for financial advice. Households that do not own an investment product purchased at their primary financial institution are more likely than the average U.S. household to turn to an independent financial planner for financial advice. This should set off alarm bells for banks, since Kehrer Bielan’s research shows that assets flow to the household’s primary source of financial advice.

The current health, economic, and social crisis is curtailing bank-based investment services from contributing the fee income in their 2020 plan to the banking enterprise. But the BISA Smart Investment study reminds the top of the house of the strategic importance of investment services, and that financial advisors are key to the bank becoming customers’ primary advisor, and capturing the lion’s share of their banking business and investible assets.

In the BISA study, Smart Investment:  Evaluating the Total Return on Investment Services to the Banking Enterprise, Kehrer Bielan utilized a data driven approach to understanding the role of investment services in the financial institution’s ecosystem. The study is available only to BISA members.

To learn more about becoming a member of BISA and obtaining the report, contact bisa@BISAnet.org.