With investors still wary of the problems that plagued so many large brokerage firms during the 2008 Wall Street meltdown, many are turning to smaller, local institutions as their source of trusted financial advice.
With that new willingness to invest locally, many regional and community banks and credit unions now have the opportunity to permanently shift their positions to compete directly with larger firms for the affluent investor.
The question becomes: How many will do so?
Long considered the transaction training ground for the larger, supposedly more sophisticated firms, many smaller financial institution investment programs have essentially caught up with their large firm competitors in terms of product and service offering. What they lack is awareness among affluent and high-net-worth investors that they even offer financial planning and investment services, and that they do it well.
"In the past, banks were looking a lot more at the bottom line and have been more transaction product driven," says Larry Langemo, SVP of Insurance and Financial Solutions of Bismarck, N.D.-based Investment Centers of America. "But since 2001 and especially since 2008, they've come a long way in enhancing their product offering and adopting a more financial planning oriented wealth management approach."
Kevin Mummau, EVP of Program Development at CUSO Financial Services/Sorento Pacific Financial in San Diego, agrees. "The basic planning services that were previously thought of as only necessary for the high net worth investor have become important to everybody."
While the mass affluent investors-those with less than $1 million in investable assets-have been increasingly willing to seek advice from their community bank or credit union, affluent and high net worth investors with more than $1 million of investable assets seldom view their financial institution as the place to receive investment advice. "The mass affluent don't consider themselves to be rich, so they don't feel as comfortable going to some of the higher end institutions," says Andrew Heiges, President of Acumen Financial Services Consulting in Doylestown, Penn. "Whereas the affluent and high net worth will go there because the marketing messages create the perception that their services are tailored specifically to them."
According to research from the Spectrem Group of Lake Forest, Ill., only 2% of the affluent and less than 1% of the high net worth view their banker or bank investment advisor as their primary financial advisor. Among the mass affluent, that number increases to 8%, but clearly still indicates huge opportunity for growth.
So how do you raise both the awareness and credibility of your investment services program? Here are four suggestions.
1. Position the program as a core offering. From the C-level executives down, your investment services program needs to be positioned as a core offering of the institution to both your customers and staff. "The top executives at the institution need to embrace investment services and send the message that not only are we going to do investments, we're going to be good at it," says Mummau. "The whole staff needs to be aware that it's not about selling mutual funds or annuities, it's about helping people build their futures."
That message then needs to be communicated through consistent marketing so that customers begin to associate the institution with comprehensive financial services. "It's really more about awareness than credibility," says Mummau. "Many people don't yet realize their local bank or credit union even does mortgages, let alone investments. They need to get the word out."
2. Create a consistent client experience. Regardless of which branch or which advisor your customer sits down with, they should have a consistent client experience that delivers the promise your institution makes. "Wirehouse advisors have greater independence and greater entrepreneurial latitude to build their business the way they want," according to Heiges. That often results in widely varying service models among branches. Financial institutions on the other hand, "have the opportunity to create a more institutionalized process and standardized way of delivering services."
3. Recruit experienced advisors who utilize a financial planning approach. As the point of service delivery, the approach your advisors take when dealing with clients and prospects is truly the litmus test by which your program will be judged. "It comes down to how the broker goes about his business," says Langemo. "He needs to take his time and develop a holistic process around creating a financial plan."
Thankfully, recruiting those kinds of advisors is becoming easier. Whereas in the past it was rare to see a top producing wirehouse advisor join a bank program, today it has become relatively common for two reasons.
First, independent and wirehouse advisors are finally beginning to recognize what those who have been in this channel for years have long recognized: The value of having a built-in prospect base that already has an affinity for the institution. With the reputation of many Wall Street firms taking a hit over the past few years, many advisors are recognizing that the mass affluent investor's trust of their local financial institution can open the doors to significant investment relationships.
Second, when they open the hood to really see the scope of products and services being offered by bank and credit union programs, many former independent or wirehouse reps are surprisingly impressed by what they find. "I've had several advisors come over from major wirehouses who have told me that we have a much broader diversity of products than what they had at their wirehouse," says Sandra DeChastain, a Regional Program Manager for CUSO Financial Services.
4. Provide credible support. While the relationship is often initiated based on the trust, competence and professionalism of the advisor, it is reinforced and reconfirmed by the ongoing support provided by the institution. In today's world this means having both a strong web-based technology platform and efficient live customer service. Today's affluent investor expects to be able to access their accounts with a single sign-on, view and download account and tax information online and transfer funds between their bank and investment accounts. If their advisor is not available when they call, affluent investors expect personalized access to a qualified customer service rep who can answer questions or act as intermediary between them and their advisor.
If there is a shortcoming among most financial institution programs, it's simply in the fact that the client-to-advisor ratio is typically so high as to prevent the advisor from providing the kind of personalized service the affluent market demands.
Where the typical wirehouse advisor will manage 100 to 200 client households, it is not unusual for the average bank advisor to service 1,200 or more. "Most regional bank and credit union programs are struggling to hire enough reps to provide solid coverage to the mass affluent," says Mummau. "Working either as an investment rep or with an investment rep in a community bank or credit union is one of the best kept secrets in our industry."
The bottom line is that now is the time for smaller regional or community banks and credit unions to step up their game. Rather than offering investment services as a defensive measure, they now have the opportunity to shift their brands up-market to appeal to a more affluent customer with all the institution's products and services.
Doing so may require some re-structuring of the traditional services program model to create a consistent client experience.
But if those smaller institutions adopt a financial planning approach with partners who provide top-tier technology, that will go a long way in conveying the message that the same services that investors traditionally sought on Wall Street can also be found on Main Street.
Keith J. Weber provides program management consulting to financial institutions. For more information, visit www.kjweber.com.