HOLLYWOOD, Fla. -- Bank advisors aren't making as much money for their institutions as they used to.
The sobering finding in Kehrer Bielan's recently released "Annual Checkup" of the industry will force institutions to seriously reconsider the future, Tim Kehrer, the firm's senior research director, said in an interview at the BISA convention here on Wednesday.
Namely, they will have to rethink how they are going to generate future growth, a significant challenge given the competitive and regulatory pressures constraining investment services businesses at banks and credit unions.
"I certainly expect to hear a lot about that over the next few days," Kehrer said.
In 2015, the typical advisor working in a financial institution produced an average of $366,428, down 5.1% from the year before, according to the report. Advisors who worked for larger banks—those that owned their broker-dealer—suffered a greater decline, falling 5.5% to $415,869. The productivity of advisors with institutions that outsourced their broker-dealer operations, in contrast, fell just 4.3% to $262,024.
The productivity of advisors at bank-owned broker-dealers slid more precipitously because they were more successful at doing the very thing they were asked to do: transition to fee-based business. Bank-owned broker-dealers on average derive 41% of their revenue from fee-based accounts while banks that work with third-party marketing firms derive just 19%, according to Kehrer data.
Fee-based business got hit on two fronts, Kehrer said. Digital advice providers delivered the first punch with competitive pricing that forced banks to lower their fees on fee-based accounts.
The market threw the other punch with its so-so returns last year. Because the market retreated, assets in fee-based accounts shrank, "throwing off smaller fees" for financial institutions, Kehrer said.
"If the rates they're able to charge are going down and the market is not so hot and that chunk accounts for half of what that program is expecting to produce, it can really have a big impact," Kehrer said of bank-owned broker-dealers.
The hit to fee-based business at large institutions is troubling in light of the Labor Department's proposed fiduciary rule. When the rule comes out, more business will undoubtedly to go into fee accounts.
It's unclear what the profitability of those accounts will look like "if every client has to be put into a managed account and fees continue to be squeezed by competition from robos and elsewhere," said Kehrer.
Falling production wasn't the only bad news. Revenue from investment services also dipped, falling 4.5% from 2014. The setback was concentrated in banks that owned their broker-dealer, where revenue slid 6.2%. Revenue increased nearly 1% in regional and community banks and credit unions that partner with third-party broker dealers.
On a more positive note, the number of advisors working in financial institutions inched up 1.6%. Banks and credit unions that outsource their broker-dealer operations led the way, increasing their advisor headcount for the third consecutive year, this time by 5.6%. Bank-owned broker-dealers, on the other hand, posted a slight decline in advisor headcount, falling .5%.
The report, released this week, was sponsored by Invest Financial Corp.