06.25.19

Mired in a Holding Pattern

by: Rob Comfort

Listen to Episode 3 of the BISA Portfolio Podcast, which features industry leader and author of "Mired in a Holding Pattern" Rob Comfort. In this episode, Rob discusses potential solutions for financial institutions struggling to increase household penetration.

Although bank and credit union investment programs have grown modestly over the last decade in revenue and assets under management (AUM), the story is different for the percentage of clients or members who look to their financial institution for wealth management needs. Household penetration has remained stagnant at roughly 6% for banks and 2% for credit unions. Thus, bank and credit union investment programs are under-performing relative to their real potential. Here, we will explore the causes and possible solutions.

Consumers typically have six core financial needs:

❯❯ Cash management (deposits)

❯❯ Credit (loans)

❯❯ Growth of assets for the future (retirement, college, etc.)

❯❯ Income generation and planning (from accumulation to distribution)

❯❯ Protection (life, longevity care, etc.)

❯❯ Leaving a legacy (to family, charity, etc.)

Why do so few financial institution clients use their bank or credit union for these crucial needs, especially when most clients say they would prefer these needs be met through their financial institution? For instance, only 2% of credit union members use their credit union for investments, yet 52% say they would prefer these needs be met by their credit union. Why the disconnect? Let’s explore.

Possible causes include:

1. Dependence on branch referrals

Historically, financial institution programs have grown primarily via traditional referrals from the branch system. This process breaks down due to:

❯❯ A lack of target marketing to the right clients

❯❯ Clients who are most likely to have been referred already have been referred

❯❯ Bank personnel often distracted with other priorities

❯❯ Little to no accountability or incentive to refer

❯❯ Regulation greatly limiting what can and can’t be said

❯❯ The most valuable prospects may not come into a branch

❯❯ Referrals are drying up as branches close and traffic declines

2. Inconsistent commitment from institution leadership

Without consistently making wealth management core to a financial institution’s services, customer penetration numbers will continue to struggle.

3. Advisor shortfall

Financial institutions lack critical mass needed to properly serve existing clients, much less to increase penetration levels. Reasons include:

❯❯ A shrinking advisor population and pool of potential new recruits

❯❯ Resistance of existing advisors to reduce territories, go second-story or build a team

❯❯ An errant view by institution leadership treating advisors under standard FTE guidelines

❯❯ Advisors’ lack of trust in institution leadership, causing turnover or recruiting headwinds

❯❯ No junior advisor training program to develop the next generation internally.

How should banks and credit unions address these big challenges that hold back any real progress and growth?

Potential solutions include:

1. Lead generation marketing: By harnessing the power of data and analytics, financial institutions can dive deep into the demographic makeup of their client base and markets. By applying that knowledge to a lead-generation marketing engine, financial institutions can target ideal clients for investment and wealth management services. For instance, credit unions that work with CUNA Mutual Group can analyze their member base across 600 data points and 13 segments based on financial behaviors.

Through data modeling, credit unions can design and implement focused marketing efforts illustrating an investment program’s value. This approach is far more precise and consistent than relying on traditional branch referrals.

2. Gaining leadership buy-in: Broker dealer and program leaders can earn much higher support from institution leadership by:

❯❯ Using models to demonstrate the cumulative impact investments and wealth management can have on loans, deposits, non-interest income, client loyalty, penetration — and the balance sheet.

❯❯ Challenging them to understand that without a total commitment to helping clients with all six core financial needs, the institution is not fulfilling its mission.

❯❯ Being bold in asking for things that put the achievement of investment goals on par with priority loan and deposit products, seek capital investment in the business and request adequate firm-wide incentive and accountability for the achievement of investment goals at all levels, including priority weighting on scorecards. Create a multifaceted proposal that illustrates the overall financial impact a successful wealth management program can have.

“Too often, financial institutions view the opportunity in retail investments as an incremental increase from the prior year to reach an annual growth goal, instead of assessing the business potential and building a program that enables that potential to be reached,” says Peter Bielan, principal of Kehrer Bielan.

3. Addressing the advisor shortfall: Unfortunately, there is no quick fix for the growing shortage of financial advisors in the industry. Potential new recruits must overcome barriers to entry, such as multiple licensures, bringing significant AUM, or trailing 12 GDC and starting on a full commission-incentive plan. As a result, younger people or those changing professions are not entering our industry. These barriers also block any real progress encouraging more diversity among financial advisors.

By creating a team approach where junior advisors, licensed bankers or RSMRs, various levels of sales assistants and other team roles can enter our profession and develop into that next generation of advisors, we can right-size our advisor force over time. Although some financial institutions have begun to implement this approach, to really impact the challenge, this must be a long-term investment and commitment, including job descriptions, compensation plans, ongoing training and development, and adaptable recruiting capabilities.

Without addressing these three challenges, our industry will continue to underperform relative to our potential and miss the opportunity to help more people address their six core financial needs. Our opportunity to change is now.