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.

In the past 10 years, real returns of the S&P 500 have been less than 1% a year (3.57% total for the 10-year period), according to Morningstar. Meanwhile, inflation increased about 25% in that same time period, according to numbers from the Department of Labor.

To make matters worse, Rhett says that investors today are still extremely frightened after the crisis, perhaps even more than warranted. "They have become irrationally risk-averse," he says.

Not surprisingly, financial planning is perhaps one of the country's least favorite topics right now. As an old Greek proverb says it, you don't speak of rope in the house of a man who's just been hanged.

One-Stop Stopped
Some argue that the whole model is flawed, and that the one-stop shop financial services model (make your deposits and buy a mutual fund) has seldom worked.

Meir Statman, a professor of finance at Santa Clara University, recalls an extreme attempt at one-stop shopping. "Remember when Dean Witter placed brokerage desks at Sears? We know it as 'socks and stocks,' and it didn't last long," he says. "It was the wrong expressive and emotional message. Expertise in socks does not transfer to expertise in stocks. Same for car loans and retirement planning."

Others agree. "Obviously, it depends on the client, but it's more of a rare bird who wants to bundle all of their relationships in one place," says Tyler Cloherty, an analyst at Cerulli Associates. "People want the best provider and they basically don't want to feel pressured into using someone because they have an existing relationship. The only people who really love [the one-stop model] are the bank executives," Cloherty says.

One consultant is even more blunt. "I think the bank brokerage business is a dying model," says Chip Roame, managing principal of Tiburon Strategic Advisors, an investment consultancy. "Banks have never fully committed to the model, have never sustainably sorted out their conflicts between bank brokerage and trust," he says.

Two of the four big banks resorted to buying full-service brokerages, which suggests to Roame that the traditional model did not fulfill their needs. Meanwhile, discount brokers continue to build out branch-like offices.

Cerulli Advisors, meanwhile, projects that the bank channel will hold steady in the short run-holding on to 4% of the total assets, possibly moving to 5% in 2013. Not going out of business by any means, but also not expanding very much.

View from the Branch
If all of that makes you want to dust off your resume, wait for the good news because there is reason to think that some bank programs will be able to get their mojo working again. "It can work," says Michael White, managing director of bank insurance consultancy Michael White Associates. "I don't think it has worked as well as it could or should, but some banks and some reps have done a good job of it."

Raymond James, a major third-party provider of bank investment programs, is one operator that is succeeding. John Houston, head of the company's Financial Institutions division, says that his unit's CAGR has grown 8.5 % on average over the last five years, a period that includes one of the nastiest recessions in memory.

Proponents of the model count several advantages. And despite the technology that is changing the industry, perhaps the biggest advantage is decidedly old school: the bank branch itself. All that real estate is already built and known, making programs relatively easy to roll out.

To be sure, community banks can earn more from the establishment of an investment program as a percentage of revenue than larger banks, although the banks that aren't in the business are not likely to jump in now. Indeed, even in good times, few banks launch new programs. (It's one of the ironies of this sector: In tough times, banks look for non-interest income, but in good times there is little incentive to do so.)

The percentage of community banks with investment programs has stayed roughly 20% since 1994, according to Michael White Associates. "Establishing a serious program requires patience-and commitment," White says. "Any new thing does not start out making beaucoup bucks. You have to view it for the long term."

It also helps that most people don't connect the shenanigans of Wall Street with their local branch. "Statistically, people in general have greater faith in their bank than they do in their broker," says Richard Ayotte, CEO of American Brokerage Consultants. "Banks will always come ahead of the brokerage industry in terms of trust."

Bank brokers are also building on strong existing relationships. "The banking business really is a relationship business. That's true on the commercial level and on the retail level. I think that's an advantage and the issue is, how do you profitably deploy it?" says Cecelia Calaby, senior vice president of the American Bankers Association's Center for Securities, Trust & Investments.

One caveat: Observers say this trust can be a double-edged sword when you're selling a product that by its nature is riskier than the other products available at a bank. Although trust is certainly an advantage in winning new business, you don't want a customer to blindly accept your word and feel too comfortable about an inherently risky product.

Short-term, there may be other advantages as well. Wirehouses in general are heading upmarket, focusing on high-net-worth investors. (Sometimes the pressure is indirect, such as cutting an advisor's compensation for smaller accounts, or establishing a minimum threshold for the advisor's production, which forces them to focus on the big-time clients.)

The important aspect for banks is the opportunity to hire new talent as the lower rungs of wirehouses are continually squeezed.

Indeed, wirehouses are doing what they always do in hard times: hand out pink slips to brokers with smaller books. And this will enable banks to pick up some trained talent, says Howard Diamond, managing director and chief operating officer of Diamond Consultants, a recruiting and training firm for financial advisors. "If you're being put into a branch or a region that is understaffed or underrepresented by advisors and you're given the opportunity to cover several branches by yourself, that's a phenomenal opportunity," Diamond says.

It's an opportunity that is sometimes overlooked. One former bank broker says there is no way to build a book faster than logging some lobby hours. "I think the bank brokerage model for advisors is the best way to start and grow because you have a natural way to get referrals and have a place to prospect," he explains.

Houston, of Raymond James, however, feels that the opportunity isn't just for novices or those struggling to keep up at wirehouses. He says these days banks are able to recruit senior people. "It's not unusual for us to recruit wirehouse veterans who are doing $600,000 to $1 million of business that any firm in the country would want," he says.

But the level of opportunity depends mostly on the bank. "If you have a bank that's committed to their financial services arm, who's committed to wealth management and they put the resources in it, it's a great opportunity. Then you have other banks who say, 'Well, we validate parking.'"

What's Next?
Many banks have had difficulty integrating their investment programs with conventional bank services.

Although some banks have had investment programs since the early 1980s, cultural differences remain between the advisor at the desk and the folks behind the counter. Some marketing experts, in fact, say those differences are the primary reason some banks have problems.

Will this divide ever go away altogether? Most say it's less of an issue than it was, but remains a problem. "I think there still is a cultural difference that probably will always be there," says Ayotte, "which probably goes back to the difference in how people are compensated-by a flat annual salary with annual reviews and adjustments versus commission."

What does it take to make it work? Successful programs tend to have consistent client service, compensation structures and leadership, says Jonathan Powell, senior managing principal for CEG Worldwide, a consultancy specializing in coaching and consulting top-performing financial advisors. "Those that have a well-defined strategy and stay with it ...have the ability to build up a meaningful and successful business," Powell says.

Powell knows firsthand how much damage instability can cause. In his nine years as director of western operations for Citibank's financial advisory program, he saw the managing director of his program replaced seven times-and the program strategy change five times. Changes in management, changes in strategy and frequent changes in compensation structure made life difficult for the nearly 300 advisors he managed. "It's hard to gain traction when you have such a fluid leadership structure," he says.

More support also means building a strong internal referral system. "Banks historically have been challenged by cross-selling, but we've all learned that to be successful in this business, it is absolutely essential," says William Reid, senior vice president, Investment Division Manager for FB Advisors, part of First Bank in Murfreesboro, Tenn. "It's not easy. It involves a lot of training, a lot of incentive plans, and most important, the investment advisors recognizing that their first client is the banker. If the banker trusts the advisor, then the cross-selling will follow."

At Reid's bank, part of the work begins with teaching the rest of the staff that the advisors really are part of the bank, not snake-oil salesmen camped out in the lobby.

To reduce the mystique, Reid says his team often holds explanatory seminars about investing to give the other staff more insight into the investment world. "Frankly, if you watch TV or you read the print media, often you only read about people who have been taken advantage of and the terrible things that happened to them. What we try to do is to help our bank colleagues understand how our products work," he explains.

Incentives help too. Even when they are relatively modest-limited by law to a maximum of $25, according to Reid-that can still be enough to be attractive to a teller making $10 an hour.

Another way to encourage referrals: encourage regular bank staff to get a securities license. Once they have their license, then they can receive much more substantial finder's fees, according to Powell.

At SunTrust, Rhett says, his team has tried to get the pipeline to flow both ways by having the investment arm compensate their brokers for sending good loan candidates over to the bank side.

Simple things can help too. "As an advisor, you have to go and make relationships and build relationships and introduce yourself and make yourself known ... it's like any place else," says Diamond.

One former bank advisor says he found that something as simple as bringing in pizza and hanging out with the other branch employees helped make the rest of the bank feel closer to him.

Also, just being considerate can help immensely. "In a wirehouse or RIA, the broker is the top dog, and that can go to a lot of brokers' heads," Diamond says. But at a bank, advisors have to "take a little bit more of a back seat because there are many other goals ... You can't be arrogant and act like checking accounts are no big deal," he says. "They are a big deal for a personal banker or teller. As an advisor, that doesn't seem like much, but for the bank, that's a big part of their bottom line."

For the most part, successful bank reps play a different game. "It's not about who you are, it's about the customer," explains Matthew Watson of Huntington National Bank in Columbus, Ohio. (Watson was one of Bank Investment Consultant's top program managers last year.)

What happens going forward will depend on many variables, both large and small. One major trend many point to is the bumper crop of retirees expected over the next 20 years, as the baby boomers prepare to retire. However, it would be a mistake to think that this generation will gravitate automatically toward the bank.

Indeed, today's 4% market share suggests the temptation is evidently fairly easy for a lot of people to resist. Between financial volatility that seems likely to keep more boomers working longer, technological advances that keep reducing the need for human interaction, razor-sharp competition and continued internal strife, banks have a lot of work ahead if they want to succeed.

But Raymond James' Houston remains confident. "I think the future's very bright for this channel, and it all depends on the individual institution and how much they want to focus on this aspect of meeting their clients' needs," he says.