Insights | 08.17.20
New Metrics for a New Era
As the financial advice business has evolved, we’ve been struck by how the metrics that the bank securities and insurance community use to describe and assess performance have remained static. The traditional securities industry metrics of average annual gross (AAG) production per advisor, assets or clients per advisor, revenue on assets and profit margin remain paramount. Additionally, the metrics that Ken and Christine Kehrer developed in the early 1990s to assess how firms are penetrating the opportunity in the institution’s customer base continue to be used by firms, consultants and researchers; revenue or profit contribution per million of the institution’s consumer deposits, millions of consumer deposits per advisor and referral rate per millions of consumer deposits or the percentage of bank customers referred. While these metrics have provided valuable benchmarks, we believe that it is high-time for new metrics that better reflect the emerging financial advice business in banks and credit unions.
In the recent joint BISA-Kehrer Bielan webcast entitled “The Advisor of the Future,” the virtual discussion addressed the metrics required to manage the business foundation for the new era. This was the third in a series of BISA’s webcasts on “The Industry in Transition.”
Kevin McCarthy from Truist suggested that growth — of the advisor’s business as well as the firm’s — should be a key metric. Growth, not just in revenue, but assets, new assets and net new assets are a better measure of how well advisors and firms are succeeding in making the transition to a financial advice model.
Another factor implicit in the discussion was the breadth and depth of planning — how many of the advisor’s and the firm’s clients are active planning clients, and do those plans encompass a more holistic view of the client beyond asset allocation? As First Horizon’s Rhomes Aur put it, advisors have to become life coaches, engaging with clients about health issues, hobbies, etc.
In terms of assessing how the firm is penetrating the opportunity in the institution’s customer base, the percentage of the bank’s viable investor customers who are served by the firm measures the breadth of penetration; the asset wallet share of existing investment clients indicates the depth of penetration, both for the advisor and the firm.
Previous discussions in the “Industry in Transition” webcasts identified the opportunity presented by the emergence of virtual communications, which free the advisor from being tethered to the branch network. The discussion in “The Advisor of the Future” session suggests that this development occurred just in time, because referrals from the branches are no longer sufficient to support an advisor.
U.S. Bancorp Investment’s (an affiliate of U.S Bank), Dorothy Mitchel, says that future success depends on advisors’ ability to source business from other areas of the banking enterprise — commercial, mortgage and private banking. Aur suggests that they are more open to collaboration as the lending business becomes more competitive, and bankers are searching for alternative ways to service clients. Don’t we need metrics to track how well advisors are collaborating with potential partners outside of retail?
As branch referrals recede in the rearview mirror, shouldn’t a key metric be how well the advisor, and the firm, is capturing clients who are not already customers of the bank? Bob Corsarie from Fifth Third said that the future belongs to advisors who are self-motivated to develop and learn to self-source their business.
A corollary measure would be how many of those clients then become banking customers. As Aur pointed out, clients don’t distinguish a difference between the bank and the broker-dealer. There are many different points of entry from the bank versus the broker dealer; one portal for the banking enterprise would encourage advisors to direct their client to another part of the store.
Let’s add these and other metrics to the yardstick we use to assess and manage the business of providing financial advice inside host financial institutions.