Disintermediation is a very sophisticated-sounding word that we might feel smart for using but is one that I think should be retired from the lexicon of the retail investment program space. I can share data and personal success stories proving that not only can financial institutions and investment programs peacefully co-exist, but investment programs actually provide a tremendous benefit to banks and credit unions. If you still aren’t quite convinced, you need only consider the huge impact the baby boomer generation will have on your business.
As the largest share of banking customers in the U.S., with 89% reporting at least one checking, savings, or money market account at a bank or a financial institution, thousands of baby boomers are retiring daily. While many maintain accounts at multiple financial institutions, surveys show that upon retirement, they are looking to simplify by consolidating all of their accounts and limiting the number of financial institutions they patron. Capturing these accounts and ensuring your position as their primary financial institution is an opportunity you can’t afford to miss.
Having been involved in bank and credit union-based brokerage operations for many years, I have kept a close eye on how we gather assets and where they come from. If you are starting an investment program from scratch, it’s true that some money will leave your institution to be invested. I will go so far as to say that possibly half the dollars invested by the advisor for clients in the first year could come from the deposit base.
However, this is significantly impacted by how the program is marketed. For example, in lieu of sending out CD letters, give IRA lists to your advisor instead, and let him or her target those deposits when it makes sense for the client. I believe it’s highly likely some portion of this money probably would have found its way out of your deposit base anyway, whether it goes to another advisor or is withdrawn by a client who is just rate-hopping from one institution to the next.
There is a range of varying statistics, but generally, I assume you have about a 20–30% share of your clients' wallet. Clients certainly have money in other banks or credit unions, plus they probably have funds with a life insurance agent, perhaps even several other financial advisors, and usually some kind of company-sponsored plan. Every dollar spread around is another chance for a competitor to not only steal your advisor’s assets under management but also raid your institution's deposits. As a program matures, which usually only takes two to four years, you will find that your advisor adds a lot more money to deposits than he or she takes.
We need to leave disintermediation behind and view investment programs as a competitive advantage, particularly for baby boomer clients. The loss of deposit assets should be viewed as seed money in what will become a thriving advisory business for the institution. I have seen it over and over again! As programs mature and advisors get established, they become less and less dependent on actually taking your deposits. You can expect a net inflow after a couple years, as assets come in from other institutions. A good advisor is really a great asset gatherer for the institution on the whole.
For help starting or growing a retail investment business inside your bank or credit union, please call me at 866-454-8582.
Member SIPC & FINRA. Advisory services offered through SWBC Investment Company, a Registered Investment Advisor.
Not for redistribution—SWBC may from time to time publish content in this blog and/or on this site that has been created by affiliated or unaffiliated contributors. These contributors may include SWBC employees, other financial advisors, third-party authors who are paid a fee by SWBC, or other parties. The content of such posts does not necessarily represent the actual views or opinions of SWBC or any of its officers, directors, or employees. The opinions expressed by guest bloggers and/or blog interviewees are strictly their own and do not necessarily represent those of SWBC. The information provided on this site is for general information only, and SWBC cannot and does not guarantee the accuracy, validity, timeliness or completeness of any information contained on this site. None of the information on this site, nor any opinion contained in any blog post or other content on this site, constitutes a solicitation or offer by SWBC or its affiliates to buy or sell any securities, futures, options or other financial instruments. Nothing on this site constitutes any investment advice or service. Financial advisory services are provided only to investors who become SWBC clients.