Unfortunately, banks haven't exploited the opportunity too well. From 2009 to 2010, banks and insurance broker-dealers saw their assets under management shrink to $600 billion, less than 5% of the overall $14.5 trillion wealth management market.
Meanwhile, discount brokers grew to $2.5 trillion, cornering 19% of the market. Also growing in that time were registered investment advisors, which command 13% of the market, and private banks and trust firms, which command 8%.
The decline in the bank channel's market share perplexes John Rolander, a partner at Booz & Co. "I'm personally puzzled by that," he said at the Prudential Wealth Management Leaders Forum in New York last month. "The bank brokers are kind of spoon-fed a client base," he told the bank wealth advisors gathered there.
Rolander explained that banks have been excessively dependent on selling annuities. As annuities "fell off in being an attractive fit for clients, their revenues dropped, their assets dropped and their share dropped," he said.
But the decline in market share doesn't doom bank advisors forever. Banks can turn their situation around by switching to a fee-based value proposition, according to Rolander. "It will serve them and their clients well," he said, in the same way it benefited private banks and trust firms.
Banks also have a key advantage on their side. They enjoy unique access to bank customers, which other channels do not, said Rolander.
Yet even on this score, the banks have so far foundered. Banks for the most part have barely scratched the surface of their sizable client bases.
Consider M&T Bank in Buffalo, N.Y. Only 17% of all the client households the bank serves have an investment product. And only 2.5% own a bank insurance product, said Kenneth Thompson, senior vice president and division head of M&T Investment Group, at the forum.
Thompson added that bank customers holding at least one investment or insurance product contribute, on average, 60% more to the bank's bottom line than customers who do not. They also contribute twice as much per month as households holding only traditional bank products, he said.
M&T Bank's experience is consistent with a study from research group Consumer Financial Decisions. The study found that only two out of 10 mass-affluent households-those with $100,000 to $1 million in investable assets-have purchased investment and insurance products from their banks or credit unions. Brokerage and insurance customers not only have higher savings and checking account balances, but are also 34% more likely than other customers to stay with their current financial institutions, even if they receive better offers, the research found.
Banks are beginning to catch on to the obvious opportunity. Last year, revenue from the sale of investment and life insurance services at banks and credit unions jumped 10%, led by sales of advisory services, which increased by one-third, according to a report from Kehrer Saltzman & Associates.
Some banks are doing even more than simply pursuing bank customers for additional business. Some are seeking ways to serve clients across all wealth tiers by developing multiple service models, said Gauthier Vincent, senior executive advisor and partner at Booz & Co. "It's the dream," he said, "of every bank," though he acknowledged that it's difficult to achieve.
One bank that made inroads was M&T Bank. Despite its low rate of banking customers who also own an investment product, it nonetheless captured the full continuum of clients through its acquisition of Wilmington Trust last May, from the mass-affluent with up to $3 million in investable assets to single family offices with more than $250 million.
"They [Wilmington Trust] had and have a phenomenal model for ultra-high-net-worth and high-net-worth clients ... and we had a very robust lower-end part of the channel, being the broker-dealer," Thompson said.
Before the acquisition, M&T Bank's trust, wealth management and corporate service business lines contributed 15% to fee income. After the acquisition, they contributed 34%. "Overnight we became the No. 1 contributor to fee income for the bank," he said.
But it is difficult for banks to achieve an across-the-wealth-spectrum strategy as M&T Bank did because opportunities to acquire wealth firms are limited. "There are not many top-tier wealth management firms available for purchase," said Vincent.
Banks, of course, can try to build their service models internally, but that can often be difficult, Vincent said. The mind-sets for serving the high and low end of the wealth management spectrum are very different and it's difficult to bridge the two, he said.