The bank advisory business is in a struggle for relevance. And the problem is, many of the individuals involved don’t even realize it.

The so-called culture gap that has plagued the bank channel for years still exists, although some parts of the industry have made good progress in recent years to close this gap and find common ground.

But those battles have been internal. So banks have scrutinized their operations with goals like streamlining the referral process and shrinking the divide between factions within the bank. Meanwhile, the broader story now brewing goes beyond managing different personalities and settling turf battles.

A new crop of issues, including fast-changing technology, new consumer demands and the widespread accessibility of information, has already toppled entire industries. There’s good reason to think that bank advisors will feel the heat soon, if they haven’t already.

Other issues at hand are more specific to financial advisors, although still as threatening. For instance, the fact that many investors do worse in the markets than mutual fund returns would suggest calls into question the value advisors offer.

Still other concerns are even more specific to bank advisors. Many of them are missing the point of banks’ current branch strategies, which entails fewer people walking in the door. Plus there is the lingering “talent issue,” as some observers describe it.

Any of those issues would be surmountable by themselves, but taken together they will be difficult to manage, to say the least. And the underlying issue making all of this even more burdensome is a certain lack of urgency among bank advisors.

Indeed, not recognizing how fast things are changing and, more important, not adapting their own approaches, is a serious weakness. In fact, if it’s not addressed, it could have an impact on the industry’s long-term relevancy.

NEW WAYS TO GET ON SAME PAGE

Banks have scored some significant victories in the internal aspects of the culture gap—the “civil” culture wars.

Indeed, institutions both big and small have been able to get bankers and advisors working toward the same goals.

For example, First Hope Bank, in Hope, N.J., has implemented a “stakeholder program,” in which each person in the bank shares in the bank’s profits, says Ed Walker, senior vice president, Investment and Trust Services. The calculation is a “complex matrix,” he says, but it’s partly based on the performance of the investment program.

That’s not inconsiderable, since about 25% of bank’s profits last year came from the trust and investments, double that of the previous year.

First Hope has about $450 million in bank assets; about $320 million in assets under management for the trust and investments division.

Walker says he considers the bank itself to be a client and expects the advisors to be talking to branch managers and other bank staffers every day with one goal in mind: to improve their process and operations.

One idea is to encourage the lenders and advisors to go on client calls together. As for referrals, Walker doesn’t leave much to chance. They all get channeled to him and then he and a top lieutenant sit down and decide who will get each referral, based partly on talents and strengths.

Bringing colleagues together doesn’t have to be about the job, however. At First Hope, the bank closes all six branches one day a year at noon (June 4 this year) for an annual picnic at the CEO’s home. The bank sent out email blasts to customers for two weeks to notify them of the closure, and Walker says they received a lot of positive feedback from customers.

About 1,200 miles west at Bell State Bank in Minnesota, Tim Bush, senior vice president of Investments, says they are in the process of implementing a referral program. They will offer a day off from work for every six referrals that branch employees pass along  (these can be bank customers or personal friends). And the top referrer of the year gets 30 seconds in a “money machine” at the annual meeting to grab as much cash as possible.

One distinction of Bell State Bank is the compensation plan. All their advisors are paid on salary, Bush says. The bank still tracks their production and even factors it into their compensation, he says. But in reality, compensation hardly ever declines.

Even in 2008 and 2009, when year-over-year comparisons were down all across the industry, his advisors’ take-home pay didn’t suffer. “The bank didn’t want the advisors to be worried about the commission on this or that product and let that influence what gets sold to clients,” Bush says.

“It feels like it works for our culture,” he continued. “Our motto is, ‘Happy employees, happy customers.’”

Bush is especially proud of the bank’s “Pay it forward” program. The bank gives each employee $2,000 to give away: half to any cause they choose, and half to a customer, who also gives to a cause they choose.

The causes don’t even necessarily have to be a formal charity. One woman went to the grocery store and paid for people as they checked out; and a group of others banded together and bought a used car for a local single mother who needed transportation

Part-timers get $1,000 instead of $2,000. But that still represents sizable investment as the bank has about 1,000 total employees, Bush notes.

BRANCHING OUT

Despite the individual success stories, problems abound. The role of the branch today is one issue where the traditional culture gap is front and center. Simply put: Banks are looking for one thing, advisors another.

There are two ironies at work here. First, banks are actively diminishing foot traffic at their branches through a fervent use of technology like ATMs and online banking even as many advisors have been reluctant to embrace technology.

In fact, more than one critic noted that many advisors are basically doing their jobs the same way they did 20 years ago.

The second irony: Advisors have largely misunderstood the potential benefits they could gain from reduced foot traffic.

On the first count, Scott Stathis, managing director of Bank Insurance and Securities Research Associates, notes that the banks still have the same customers they always had, they’re just reaching them in new ways. And advisors need to evolve and figure out how to interact with them in new ways too. “Does the move to online business mean that banks are losing customers?” he asks. His  answer: “No.”

The answer for advisors will involve more technology tools with alerts that indicate when a customer may need advisory help, such as when deposits build up or when CDs are maturing, Stathis says. “The FAs who just wait for branch traffic are getting the one-and-done customers anyway.”

On the second irony, many advisors have pointed to this branch reduction as the bane of their existence. But Wayne Cutler, managing director of consulting firm Novantas, says they have missed the main point, which is that banks are trying to reduce the day-to-day transactional traffic, not advisory business. In fact, many banks have been trying to highlight their advisors and morph their branches into an advisory/planning destination.

Indeed, Stathis adds that the reason banks are making this move, contrary to conventional wisdom, is not just to cut costs. Rather, they are simply following their customers’ natural progression and providing new services that are being demanded.

Democracy is Good (Unless You’re King)

One of the biggest forces to affect advisors is the democratization of information, says Tom Kane, founder and managing director of wealth management consulting firm KaneCarlton.

While it’s an issue for all advisors, he says that bank advisors in particular have had trouble recognizing its importance.

He likened them to Kodak, which dominated in film photography for decades until its missteps with digital technology beginning in the early 1990s wreaked enough havoc that the Rochester, N.Y. company ultimately filed bankruptcy in 2012.

Comparing the two, Kane says that bank advisors appear to take the attitude that “digital photography isn’t here to stay.”

Indeed, the comparison is especially apt for an industry facing new tech demands from customers. New consumer demands cannot be shrugged off as “something we don’t do,” Kane says.

If banks won’t fill this demand, then other companies will be glad to do so. He cited Wealthfront and Betterment as two nimble competitors that advisors should heed if they want to stay competitive.

The answer for advisors will undoubtedly entail using more technology in their own offering. But many seem unwilling even to take the first step, says Kane, which is the simple art of conversation. “How does your client want to communicate, have you even asked them?” he asks.

ARE YOU WORTH IT?

In the midst of all this, there are the usual questions of whether advisors are worth the time and money they cost.

Even before the modern proliferation of information, index funds (and later ETFs) showed everyone that investing could be cheap. And The Wall Street Journal’s “dartboard” stories showed everyone that it could be effective.

But advisors still have value to add, even if they aren’t communicating it to clients and prospects, says Philip Simensen, president of USAdvisors Network.

“Investments work, investors don’t,” he said, echoing a common refrain, meaning that mutual funds and indexes have made much better returns over the years than a typical investor, even those investors who are investing passively.

How big is that difference? Estimates vary, but they hover around 300 to 400 basis points.

Philip says that over the past 20 years, the S&P 500 Index has returned about 8%, whereas most investors have gleaned about 4%, mostly because of untimely buying (near the top) and selling (near the bottom).

The advisor’s job is to help gain that 3% to 4% by taking emotion out of the equation, Kane says. They need to help clients “get out of their own way.”

Advisors also need to present their own value proposition on this issue more clearly so clients understand the value they’re getting.

One way to do that is to help clients shift away from the indexes altogether, Kane says, and more toward what he calls “purpose-based investment strategy.”

Instead of trying to beat an index, segment money into needs (college, retirement, etc.) Invest them differently and measure each one against that goal.

For example, if a client already has enough money for their child’s education, there’s no need to continue taking risk with that portion of their portfolio, he says.

Cutler said that advisors must be able to offer “solutions, not products.” For example, clients may say they want an annuity, but what they really want is a guaranteed level of comfort later. So consider a full gamut of possibilities, like target-date funds and CDs linked to an index, Cutler says.

The question of “are advisors worth it” is exacerbated by a shrinking talent pool in the industry, Stathis says.

 The bank channel was fed for years by wirehouses’ robust training programs. Those trainees who either quit or couldn’t quite make it were still pretty good advisors, and many of them liked the idea that banks could provide them lists of leads.

“This fed our channel until about 2008, but then the big guys pulled back and started just recruiting from each other.... Then, banks started recruiting from each other too.”

He says there is no good solution in the short term, although in the long term, it may involve more college intern programs

TAPPING POTENTIAL

Venu Krishnamurthy, wealth management president of Citibank’s Citigold, feels there is a lot of untapped potential in the bank channel. He says a lot of banks are going through major changes with their branches. So much so, in fact, that he refers to the “evolution from a branch centric model to a multi-level distribution model” as the big picture of the industry.

But he doesn’t view the branch format as a restriction on the performance of the best bank advisors. Rather, he says an advisor’s branch situation is just that: situational.

He recounted the tale of two Citi advisors in different parts of the country who are dealing with very different circumstances; one good, one underperforming. They are both handling things in a very different, yet appropriate, ways, he says.

Overall, he takes a pragmatic approach, admitting the challenges but keeping the end goal in narrow focus.  At Citi, despite the improvements over the past couple of years, there are still cultural issues. “I wish I could say we’ve found the answer,” he says.

But despite all the changes and any new strategies in communication, the real nuts-and-bolts of the job have not changed from a high-level view.

“Technology continues to change, regulation continues to change...but the basics of the job are the same: specialized advice,” Krishnamurthy says.

Back in New Jersey, Walker chalks up a big part of Hope Bank’s success to the fact that it’s a family-owned business. (Others in the industry mentioned this too.)

And not just because they’re able to hold picnics at the CEO’s house. There are also more tangible business advantages, such as being free to make long-term plans and not feeling beholden to Wall Street’s quarterly expectations.

Walker also echoes Bush from Bell State Bank, saying there are specific personality traits that fit the bank. In fact, they have a sophisticated hiring process that includes a predictive index for behavior, multiple interviews, and a 40-minute phone interview before a candidate ever meets anyone at the bank, he says.

Still, the big picture of changing consumer demands will have a sweeping effect on banks both big and small and needs to be heeded, Kane says. He takes an example from history to illustrate the impact of societal changes.

Julius Caesar and Abraham Lincoln lived about 2,000 years apart, he says, yet both could only travel about 20 miles a day (on horseback.) There was essentially no change in that aspect of life.

Today, we can move 500 miles per hour in a jet; or if you’re an

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