Having made it back from the brink, the outlook for bank brokerage in 2010 is looking up, if for no other reason than last year was so bleak. Of course, a lot depends on the market holding up reasonably well and the economy continuing to recover. So far, most economists agree that both are likely. The mega mergers of 2008 brought more wealth management assets into banks than ever before, but even if you factor out the acquisitions of Merrill, Wachovia, Washington Mutual, and Bear Stearns, pundits are bullish on 2010. BISA research from earlier last year indicates that over 60% of program managers expect to expand recruiting for their platforms and dedicated programs despite the market uncertainty. In BIC's Outlook Survey, the majority (72%) of respondents predicted that their programs would grow at least a little in 2010.

Paul Werlin, president of recruiting firm Human Capital Resources in St. Petersburg, Fla., estimates that growth will be positive, but modest. "It wouldn't shock me to see a 10% increase in production," he says. He believes advisors who stuck by their clients through the crisis will reap the rewards of that hard work this year.

Anecdotally, big regionals, like PNC, U.S. Bancorp and Huntington Bank, are all adding significantly to their programs. Third-party marketers LPL, Raymond James and Primevest report more modest growth, but claim to be adding reps. "We've seen some banks impacted by consolidation but others have picked up programs," says Dan Arnold, managing director and divisional president at LPL. "I think you'll see growth because of improved productivity of existing programs."

Consolidation will continue in 2010, but that may not be a negative. Dying banks are creating opportunities for healthier banks to expand through acquisition. And at many failing banks, investment programs were merely defensive. "Getting weeded out is the historical stuff where banks were afraid of disintermediation, so they never promoted the business," says Catherine Bonneau, CEO and president of Primevest. "We're seeing the banks that are coming online now are serious about brokerage being a value-added offering for clients."

No matter how many banks fail, the demand for investment services will remain. "The need for advisors to help clients doesn't go away just because the programs change," says BISA Managing Director Heywood Sloane. "The investment customer is still there. The program will sink or swim based on whether it serves the client well."

Indeed, the need for investing services has increased. A near financial collapse and a dramatic market rebound have made consumers more anxious for advice-especially aging boomers struggling to redefine retirement. "It's a much more complex marketplace and there's more responsibilities on individuals to achieve their financial goals," says LPL's Arnold. "Those two factors will create long-standing opportunities in investment advisory and insurance solutions."

PLAYING BY NEW RULES

Perhaps the biggest changes in 2010will come from expected legislation in reaction to the financial crisis. "Regulation is fundamentally altering the landscape," says Kevin Travis, a principal at New York-based consulting firm Novantas. "I think this is great news for bank brokerage." Why? Because Congress is threatening to cap such bread-and-butter bank income as fees on credit cards and account overdrafts at the same time as lending is tight. This means they need alternate sources of revenue such as brokerage. "The overdraft fee model and free checking model, where you used fees as a primary source of revenue is dead," says Travis. "In addition banks are squeezed on the lending side and probably will be for some time. They need to find ways to sell other stuff and investments is the easiest adjacency."

Another regulatory change that is expected to shake up bank brokerage is the Securities and Exchange Commission's attempt to "harmonize" regulations to create one fiduciary standard for all advisors. "The 800-pound gorilla in the room is the fiduciary standard and that might be disruptive," says Ken Kehrer, director of industry tracker Kehrer LIMRA. "Almost everybody will have to do more investment policy statements and start being honest about fees."

Depending on how sweeping such a ruling might be, banks may have to train reps differently and adopt new compliance systems. If the rules require advisors to put the interests of the client first, those who now make money from commissions on mutual funds and annuities may be compelled to recommend lower-priced alternatives. "Series 7 bank advisors are going to need to be well-versed in advisory products and more consultative than transactional," says Werlin.

A looming question is what will a new standard mean for platform reps. Since they are highly regulated already and their products, very limited, the suitability standard currently in use may be sufficient. But the effort platform reps would have to invest to find out what's in the client's best interest could make such programs uneconomical. "If the fiduciary standard is applied too broadly, I don't know how you serve smaller people," says BISA's Sloane. "Suitability makes it possible to get simple solutions to people who otherwise would never get access to an advisor. Financial planning is not appropriate for all situations."