Business Transformation | 06.10.24
The Many Paths to Integration: BISA Portfolio Magazine Extension
Below are three case studies highlighting the different paths financial institutions have taken to wealth integration. Read background and data on how to approach integration from Kenneth Kehrer, Ph.D., of the Kehrer Group in the BISA Portfolio Magazine — access the digital edition on our website.
People’s United: All In on an RIA
Before:
People’s United Bank had $68 billion in assets, $24 billion in core deposits, 500,000 retail customer households and 400 branches in New England and Long Island, New York.
Wealth management consisted of a unit focused on serving the mass affluent and another serving the affluent. In addition the bank had acquired two advisory firms — Gerstein Fisher and Olson Mobeck Investment Advisors (OMIA) — which continued to function on a standalone basis.
People’s Securities was a broker dealer, RIA and life insurance agency with 38 financial advisors and 750 registered and insurance-licensed bank platform staff. Product offerings for the broker dealer included self-directed brokerage, mutual funds and annuities. The RIA had access to SEI, Black Rock, American (Envestnet), Gerstein Fisher Portfolios and OMIA (Advent). The financial advisors also sold life insurance and provided financial planning through Sungard. Advisors were supported by a combination of registered branch staff, sales assistants and junior brokers, subject to production minimums. A centralized self-directed/advisor support call center was staffed with six registered representatives. In addition to transaction and trading support, this group also acted as internal sales assistants.
Wealth Management & Trust provided proprietary portfolio management and trusts and estates on the SEI platform. Wealth Management Planners provided financial planning through Sungard.
The principal source of new business for People’s Securities was referrals from the branches, which had branch asset goals and a multi-factor compensation plan. The 750 registered and insurance-licensed bank employees were paid 10% of revenue on a sale, and 5% for a referral that resulted in a sale. Prospects with more than $ 1 million in investable assets were referred to Wealth Management & Trust. Approximately 90% of the branch referrals went to People’s Securities; WM&T relied primarily on the commercial bank and client referrals for prospects. The overall referral process was managed through Salesforce.
The branch staff and the financial advisors used a standardized questionnaire — The Financial Needs Assessment — in addition to a risk assessment questionnaire. More affluent clients experienced a more open-ended information gathering process.
Cooperation between PSI and WM&T was not common. There was an overall lack of communication and appreciation for each other’s skill sets and expertise. Management tried creating teams consisting of a financial advisor, wealth advisor, commercial banker and branch officer, but they were not working well. Management determined that the central reason for lack of success was that compensation was not (and in some cases, could not be) aligned.
Transition:
People’s United changed the legacy model in two phases.
In 2018 they moved agency wealth management assets onto an RIA platform and offered investment services as an RIA under the brand People’s United Advisors. Fiduciary Trust assets remained on the SEI platform with PUA appointed as investment manager. OMIA and Gerstein Fisher were integrated into People’s United Advisors. Trust Officers became registered as investment advisors.
People’s Securities continued to serve the mass affluent as an RIA using Envestnet and ceased the selling of load mutual funds to new clients. The registered branch staff were asked to stop personal production and only refer prospects to the PSI advisors. The discount brokerage stopped taking new clients. The focus was now on managed money.
The existing call center was expanded to include the Advice Center, staffed with four experienced advisors. FA accounts less than $25,000 were transitioned to the Advice Center, which also serviced low-balance mutual fund client exceptions and the kinds of transactions formerly handled by the licensed bankers. Advisors received credit for fees earned on the accounts they gave up for one year.
The financial planning platform for the division was moved from Sungard to eMoney. FAs gathered appropriate client information and sent it to centralized planners. Once the plan was complete, the FA delivered it to the client. Wealth management would typically refer their clients to centralized planners who would collaborate directly with the client. Several CFP wealth advisors were authorized to create plans for their clients.
In the second phase, starting in April 2020, People’s United combined all RIA activities under People’s United Advisors, including PSI, which continued to offer third-party asset managers. PUA created portfolios for the mass affluent segment that were sold through the PSI advisors. A unified fee schedule was installed across wealth management. The decision was made to maintain multiple ADVs, since PSI continued to offer third party solutions.
People’s United considered creating a unified sales force, but after recognizing the regulatory and supervisory complexity of such a structure, decided to keep the retail and wealth management sales forces separate, operating on separate platforms. Envestnet was utilized as the bridge to PUA portfolios for the PSI advisors, who were dually registered with PUA and PSI. The heads of PUA and PSI were direct reports to the head of wealth management.
The operations staffs were then combined.
The PSI advisors became gatekeepers for all branch referrals. Salesforce provided client transparency.
Incentive compensation was aligned. PSI advisors received 50% of PUA fees credited to their grids for wealth management referrals, in perpetuity. Assets that PUA wealth managers referred to PSI advisors counted dollar for dollar towards their asset-based goals.
A digital solution to distribute PUA portfolios was tested but abandoned after a “friends and family” pilot.
The wealth management/mass affluent teams were working on a unified onboarding/investment questionnaire when the M&T acquisition was announced. As People’s United was integrated into M&T, its wealth management structure was also integrated into the M&T Wilmington Trust structure.
Results:
Within six months, half of new mass affluent assets placed by FAs were going to the PUA portfolios. 90% of the PSI advisors were engaged in selling the portfolios. Advisors/WM officers began to better cooperate and make cross-referrals. Most importantly, PSI advisors were able to leverage the PUA brand and investment messaging while having direct access to Portfolio Managers when necessary. Management closely monitored sales activity and identified no instances of salespeople attempting to circumvent referral policies.
However, the lack of load funds being available to the FAs was an ongoing irritant and would have potentially hindered recruiting.
Under the unified investment messaging to clients using the overall PUA brand, PSI advisors no longer felt “left out.” Compensation was no longer a barrier to cross-referring. With one gatekeeper for branch referrals, confusion was eliminated. PSI and wealth management staffs began to have a better appreciation for each other’s expertise.
Eight months into the new model, management had two main open issues: Should load mutual funds be reintroduced and should FAs only offer PUA portfolios to clients?
While management provided consistent messaging to change the culture, supported the needed retraining and ensured accountability, aligning compensation proved to be the most important component in driving meaningful sales integration.
Want to learn more? Reach out to Mike Harkins.
Salem Five: Integrated Wealth Management Platform
Salem Five Cent Savings Bank has $3.9 billion in core deposits and 33 branches in New England. It has 13 financial advisors affiliated with LPL Financial, who manage $1 billion in assets.
A few years ago, the bank decided it should add Trust powers to broaden its wealth management services to its customers. After some deliberations, it reached agreements with Fi-Tek to use its trust platform and Northern Trust to custody the trust assets. Initially the wealth and trust offering was set up as a separate division, but after struggling to gain traction, the decision was made to consolidate all of wealth under one umbrella. At that point, LPL was reaching agreement with Fi-Tek to build an integrated wealth platform that would accommodate brokerage, advisory and fiduciary investments. Both investment management and advisory will be accessed on the LPL work station. Salem joined a working group of LPL institutions to participate in building the platform, and is now further along than the other institutions in implementing the system. Phase one of the consolidation will mean converting agency and IRA assets to the LPL platform, and phase two will be the integration of fiduciary accounts through the unified wealth portal.
The wealth management services will be provided by a unified sales force. To prepare for this restructuring, Salem Five created a three-tiered environment: a centralized desk, institution- facing advisors and a second-story environment for senior advisors. The creation of the second-story opportunity was critical for the legacy LPL advisors, who will continue to be compensated off the existing grid. Given their tenure and size of their portfolios, the second story advisors will focus on growth through practice management and financial planning rather than referrals from the bank. To facilitate this transition, Salem Five negotiated retention/succession agreements with these advisors. In addition, these advisors will have access to trust services, and can receive a percentage of first-year fees for the referral of fiduciary accounts.
The remaining financial advisors and the trust BDOs are being combined into one wealth management sales force. All wealth management referrals will be directed to this sales force, who will be compensated on a salary basis. Salaries range from $90,000 to $150,000, depending on experience, in addition to a percentage of the first year fee for all advisory accounts The wealth management unit is also currently discussing a bonus arrangement with bank management.
There is also a private banker who focuses on securities-based lending. The bank created its own SBLOC product, and the private banker sources business from the LPL advisors, commercial and retail bank referrals and existing clients.
Referrals of customers with less than $100,000 in investable assets are served by the centralized sales desk advisors, utilizing the full suite of LPL products and services. If the desk determines through profiling that the customer has additional assets, they are then referred to one of the wealth advisors. If the referral results in an advisory sale, the desk advisor is paid a percentage of the first year’s fee, in addition to the compensation paid to the wealth advisors.
The structure is designed to create a pathway for advisors to be trained on the desk, eventually be promoted to a Wealth advisor, and ultimately be transitioned to a second story advisor.
Webster Bank had $24 billion in assets in 177 branches in New England prior to its merger with Sterling Bank. It now has $65 billion in assets and 202 branches in the Northeast.
Wealth management consisted of two quite separate businesses: a retail securities brokerage unit [Webster Investment Services] and a private bank. Webster Investment Services had 55 financial advisors who administered $4 million in assets and cleared through LPL. The private bank managed 2.5 million in assets through nine bankers. Webster Investment Services reported to the consumer bank, while the private bank reported to the commercial bank.
The bank viewed Webster Investment Services as serving clients with less than $1 million in investable assets, with the private bank serving more affluent clients. On and off discussions about improving the efficiency of the delivery of wealth management led to moving the client stratification between the two firms to $1.5 million, a recognition that providing individual portfolio management to mass affluent clients was not optimal.
But a review by McKinsey accelerated those discussions at the chairman’s level. The bank decided that it needed to unify its delivery of wealth management in order to achieve operational efficiencies and to achieve scale. Perhaps more importantly, it needed a unified wealth management offering to build a wealth management brand among its customers.
Webster Investment Services was moved to the portfolio of businesses managed by the head of the commercial bank. The unified wealth management business had co-heads — the former head of Webster Investment Services and the former head of the private bank. But the incumbents decided to switch roles: all the operations, administration, portfolio management and compliance teams reported to the former head of investment services, while the sales managers, wealth advisors, relationship managers, fiduciary service, and wealth lending staff reported to the former head of the private bank.
The service tiers were tweaked: the retail advisors continued to serve mass affluent clients with less than $1.5 million in investable assets, but senior advisors, who had been moved out of the branches to second-story offices, now were given the responsibility for clients with less than $3 million in assets. That left the private banking relationship managers responsible for clients at $3M plus in coordination with portfolio managers.
The co-heads integrated the middle and back offices, eliminating redundant middle managers and taking advantage of the larger scale to reduce headcount in licensing, compliance, marketing and event planning. Financial planning was centralized, relieving advisors from data gathering and compilation that could be done by a paraplanner. Resources were shifted to digital marketing to position how Webster can help different client segments on their wealth management journey.
The compensation structures of each tier remained intact — the retail brokerage sales force kept its traditional grid structure, and the private bankers remained salary plus bonus. An earlier McKinsey engagement had recommended moving the retail sales force to salary plus, but Webster demurred, noting the instability that change has wrought in some institutions. Instead, Webster Investment Services pushed up its base salary somewhat, but more in the range that the wage and hour regulations suggest as a safe harbor for exempt employees. An integral next step in the wealth unification was to move both former divisions (brokerage and PB) to one operating platform. At the time of unification, trust, brokerage and RIA were operating on three distinct platforms with a goal to move from three to two to one.
In 2020, Webster announced the merger with Sterling Bank. The resulting corporate reorganization adopted Sterling’s wealth management model, including outsourcing the management of the retail securities advisors to a unit of LPL. The private bank was again separated from the retail investment services unit. Work continues to consolidate to one operating platform.
Want to learn more? Reach out to John Olerio.