Wealth management businesses at banks and credit unions are showing signs of fatigue.
Both revenue and advisor productivity slowed in 2014, even as the need for advisors and investment advice increased, according to a report from Kehrer Bielan Research & Consulting released Monday.
Revenue from investment services at the typical bank and credit union increased just 6%, off from the 8.8% annual average growth rate experienced from 2011 and 2014. "Major banks expect their investment services businesses to grow 12%, 15%, even 20% per year," said Kenneth Kehrer, an author of the study and principal of Kehrer Bielan.
Advisor productivity slackened by an even greater margin. The typical advisor generated an average of $405,560 in revenue in 2014, up less than 8% from $376,215 the year before. In 2013, productivity rose 16.3%, more than twice as much.
Gains in advisor productivity helped fuel revenue growth in previous years, but those gains may be reaching their limit, noted Peter Bielan, a principal of Kehrer Bielan. To drive the "next surge in growth", banks and credit unions will need to hire substantially more advisors, boosting headcount by 70% on average, the authors contend.
"The number of advisors in banks and credit unions fell slightly last year, and is certainly falling behind the growth in the investor population within financial institutions. As the number of investors grows and wealth accumulates, there is a need for more advisors, in financial institutions as well as in other wealth management channels," Kehrer said.
While the number of advisors overall fell marginally by 0.3%, those in financial institutions that work with third-party broker dealers increased 5.7%, a factor that played into their stronger revenue performance, according to the report. Banks and credit unions that outsourced their broker-dealer business experienced a 7% increase in revenue, whereas banks that owned their broker-dealer boosted revenue by only 5.8%. Interestingly, the slower growers shrunk their advisor force by 3.2%.
The latest "Annual Industry Checkup" examines the health of investment services in bank and credit unions, drawing on both proprietary and industry data. It is sponsored by INVEST Financial Corp.
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