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Capture Your Share of a $20 Trillion Wealth Transfer

By: Jay McAnelly

During the next 20 years, baby boomers will be transferring an estimated $20 trillion in wealth to their heirs. Properly positioned, you can go head-to-head with even some of the biggest full-service banks that are relentless in their quest for a bigger share of your prime customersí wallets.

You may have a loyal base of customers with large deposit accounts ó but how much of your customersí wealth is held outside your institution? The answer is quite a bit. In 1948, banks had 55.9 percent of customer assets. By 1980, banksí share dropped to 34 percent. In 2006, it stood at 17 percent. Indeed, some experts maintain that for every $1 of assets on deposit in a bank today, there is $8 on deposit or invested elsewhere.

To recapture these assets and stop high-margin customers from defecting to the full-service banks that offer a full suite of investment and banking services, community bankers must develop new ways to meet a broader array of customer needs. The fact is that deposits will continue to go elsewhere if your customers decide they need a comprehensive, long-term financial strategy for themselves and their families.

Creating value for customers and meeting real needs is a proven direct route to business success. Today, one customer need that is largely unmet is help with pressing financial issues such as developing a road map for attaining goals, fighting inflation and preparing for a secure retirement. When it comes to managing their financial lives, customers need more guidance and services than ever before ó and an on-site investment program provided by your bank is a very attractive resource for them. It is this type of service line expansion that will help you profit from the $20 trillion wealth transfer already in progress.

Forward-thinking community banks are adapting to the realities of todayís competitive environment by partnering with a third-party broker/dealer in a collaborative bank investment program. Itís a strategy that can accomplish several objectives in one fell swoop: (1) meet more of your customersí needs; (2) increase fee revenue; (3) increase non-interest income; (4) differentiate your bank; and (5) help you stay competitive. Based on shared objectives and shared rewards, a collaborative bank investment program is likely one of the quickest and least-expensive paths to achieving a sustainable improvement in your bottom line.

What to Look For In a Collaborative Program

The choice of broker/dealer partner is key to the long-term profitability of your bank investment program. Whether youíre considering your first program or already have an underperforming one in place, the non-interest income benchmark for a collaborative program should be 7 percent to 12 percent.

Here are four must-haves that should be on the resume of any firm engaged to help fend off the large national companies competing for your customersí assets.
Experience in Your Market Segment

Selling investment services in a community setting requires partnering with a firm whose core strength is working with banks that serve Main Street America. This type of firm has a deep understanding of local banks and their customers and most likely the experience needed to deliver results even in smaller towns or largely rural communities. A firm with a history of focusing on community bank programs has an affinity for them that drives the collaboration to success. Look for a firm with a track record of building community programs from the ground up as well as the know-how for turning underperforming programs into winners.

Specialized Recruiting Skills

This is an opportune time to be recruiting a financial consultant ó today more highly qualified professionals are looking for a great place to be. But skillful matching of a financial consultant to your bank is much more than just posting on industry job boards. Be sure you understand the broker/dealerís recruiting philosophy, methodology and level of care used to recruit a consultant who is an above-average fit with your bank and who will be a strong addition to your team. In addition, ask about the firmís consultant retention rate.

The Right Kind of Financial Consultant Support

A salespersonís performance is heavily dependent on how much time he or she actually spends with clients and prospects and how little time is spent on administrative matters and other activities. Find out the broker/dealerís approach to all aspects of financial consultant support ó from training to sales management to product specialists and beyond. This is what enables the consultant to focus on providing the value-added, personalized client service that increases assets under management and revenues to your bank.

The Broadest Range of Product Solutions

Engaging a full-service broker/dealer is an important part of the revenue picture. With your bankís complete line of products and services and those of your broker/dealer, you will be positioned to respond to more of your customersí personal and business needs.

Stem Deposit Disintermediation

Contrary to what many bank executives thought, an investment program can stem the problem of deposit disintermediation. According to Kehrer-LIMRA Inc. and its white paper Attributes of Best Practices Bank Brokerage Firms, best practices bank brokerage firms have lower disintermediation rates than other banks. This research suggests that in programs with certain structural components and a high degree of collaboration among financial consultant, bank and the broker/dealerís home office employees, disintermediation is actually reduced from +/-2 percent to just about nil. The study also indicates that customers who purchase investment products typically replenish their deposit accounts within 18 months.

Growing revenues and increasing profitability are goals for all banks ó but they can be especially difficult to achieve for community institutions with a relatively finite customer base. A collaborative bank investment program ó one in which all who are directly and indirectly involved are in synch ó is the answer that is in the best interests of your bank, your customers and the broader community.

If you (a) think your market is too small, (b) assume the average community household income is too low, (c) feel there is already too much of this competition in your town or (d) have a program youíre disappointed in, you should find out firsthand what the possibilities are by meeting with broker/dealers who meet the minimum criteria described above. Even though effective collaboration in a bank investment program is a capability that is rare, it can work superbly with the right partner.

Jay McAnelly is executive vice president of Investment Professionals Inc., San Antonio. Contact him at 210-483-5073 or jay.mcanelly(at)

Copyright © September 2008 BankNews Publications