The past few years have been a watershed for financial services. And just beneath the shocking headlines and news that derailed the economy, retail bank programs-not always the most dynamic part of the industry-have come to their own fork in the road. While bank presidents endured the harsh spotlight and drew the ire of regulators and the press, advisory programs were just off stage encountering changing attitudes and consumer fears (underscored by the Occupy Wall Street movement). There also have been new regulations that have changed the business. "I think we have had a seismic shift in the industry," says John Rhett, chairman of SunTrust Investment Services.

Opinions run the gamut on what will happen next. Some industry insiders say that the bank investment channel can count on a fairly easy ride from here on out. Others have the sense that the whole bank advisory model is just a few exits from extinction.

At the macro level, the pessimists have a pretty good case. Between massive macroeconomic shifts, new regulations and fierce competition, bank advisory programs are bound to encounter bumps ahead. But when viewed from a micro level (that is, from the perspective of the bank branch), the optimists have a strong argument. Bank advisors retain some formidable advantages, including a high level of community exposure. Add to that the surge of baby boomers nearing retirement age and life around the corner for the purveyors of financial advice sounds fairly rosy.

So who's right? They both are. It's true that the future does not look good for some bank programs. But the survivors, on the other hand, may be in line for some substantial opportunities. Here are some of the pressures that will shape that competition-and ways you can tell whether you're working for one of the winners.

The Big Picture
Despite the economic downturn, the financial sector represents about 8.4% of U.S. gross domestic product, four times higher than at the end of World War II, and nearly a full percent higher than in 2005.

Several trends, including investor skepticism and cost pressures, suggest that those recent levels represent an outlier and that a reversion to the mean might be on the way. Indeed, a number of surveys indicate that financial services are targeting 20% to 40% cost reductions in the next few years, suggesting that industry leaders are expecting tough times ahead.

Those cost pressures stem from rising reserve requirements for banks, technological competition and greater regulatory constraints.

This should prompt more interest on the part of banks in generating more fee-based business. Indeed, SunTrust's Rhett says that low interest rates are limiting profitability of loans and driving more interest in investment programs, which could be good for the sector.

However, hyperefficient competition seems likely to do for financial advice what Wal-Mart did for local groceries. The story repeats itself with dazzling regularity: Enter Wal-Mart, exit smaller retailers. Or enter Amazon, exit local bookstores. Some high-end stores may hang on to serve a specific clientele, but for the most part, price trumps service.

Something similar may well play out in the investment advisory industry, as the high and low ends squeeze the middle.

That certainly seems to describe Merrill Lynch's playbook. The firm recently raised the minimum for its classic full-brokerage accounts to $250,000. At the same time, it also has expanded its new, lower-cost, tech-heavy discount model, Merrill Edge. A year-and-a-half old, Merrill Edge now reaches nearly 1.5 million clients with a combined $62 billion in assets.

Other mid-market brokers are making their presence felt as well on the bank channel's turf. Brokers such as Edward Jones and Charles Schwab are a mainstay on Main Street. Schwab, for instance, manages $1.65 trillion and continues to grow, with 8.2 million client accounts and 300-plus offices.

All this competition seems set to push more innovation in financial services-which will create still other challenges. Although online financial services have had a niche appeal in the investment world until now, the experience of other industries undergoing a technological transformation suggests that if someone does invent the right model, the shift will be rapid and tend toward a winner-take-all scenario (think Google, Amazon or iTunes; or just ask your beleaguered travel agent).

So the main challenge for the bank channel is to work out a new more cost-effective model that leverages technology but retains a human touch, says SunTrust's Rhett.

A second challenge for advisors: Most investors will remain a hard sell when it comes to investment help. Many of them watched their accounts sliced by a third or a half after the last crash.