By Toni Lapp
As community banks remain challenged by the rising cost of complying with new regulations, not to mention the narrow margins afforded by a still-low interest rate environment, they also face the need to transform their businesses in an effort to reach new customer segments. One such segment is the high-net-worth customer.
Every so often, an article makes the rounds of mainstream media about innovative ways banks are catering to these customers. A 2014 Wall Street Journal article described “concierge” services that included setting up college tours in New England for clients’ children, negotiating the purchase of a customer’s yacht and arranging for nursing home care for an accountholder’s sister. Needless to say, services like these are not in the wheelhouse of many community banks.
One value-added service that community banks can provide, though, is wealth management.
A KPMG LLP survey found many community banks are increasingly focusing on opportunities to drive revenue through targeting the wealth management sector. In fact, nearly one-third (32 percent) of survey respondents believed asset and wealth management would be the biggest revenue driver for their bank over the next one to three years.
Underscoring the importance of this sector was another recent study, “The Value of an Investment Client to a Bank or Credit Union.” This research, undertaken by Kehrer Bielan Research and Consulting, found that consumers who purchase an investment where they bank will keep their deposit and credit products longer, which in turn increases the profitability of the banking business.
“Historically, banks and credit unions have not considered their investment program part of their core business,” said Andy Kalbaugh, managing director of LPL Financial Institution Services, which sponsored the study. “Making their investment program a bigger priority will generate growth in loans and deposits.”
Another sign of the opportunity for growth: Just 13 percent of U.S. households own an investment purchased at their primary depository institution, according to LPL’s research.
This population is highly desirable; clients who have purchased an investment from their financial institution have 38 percent greater checking account balances and 140 percent greater savings deposits than those who don’t, said LPL. Furthermore, clients with investment accounts purchased at their FIs are much more likely to use every kind of credit product offered.
In short, banks that do not make investment services a priority are missing an opportunity to leverage the relationship with these customers at a time when banks should be focused on new methods, products and services to reach new customer segments.
Toni Lapp is senior editor of BankNews magazine.