Banks could easily boost the profitability of their wealth management programs if they integrated their private banking, trust and brokerage businesses,according to a new report from Cetera Financial Institutions.
The lack of integration is not only hurting their bottom line. It is also damaging the customer experience and eating into their market share, Cetera contends.
Integration of wealth management services makes it easier to holistically meet clients needs. This approach is more convenient, gives the clients more peace of mind, and it also enhances their loyalty and improves the financial institutions bottom line, Catherine Bonneau, president and CEO of Cetera, said in a statement.
According to the report, most private banking clients (71%) and trust clients (59%) say they would choose banks as their primary financial institution. Relatively few 5% of private banking clients and 6% of trust clients say they favored full-service brokerage firms as their primary source of financial advice. Despite this, only 28.5% of private banking clients and 16.7% of trust clients have purchased an investment or insurance product from a brokerage program at their bank.
Brokerage has achieved only modest penetration of these opportunities in the wealthy segment, largely because it has been walled off from trust and private banking clients, the report says.
The relatively low wealth penetration rate is surprising given that trust and private banking clients overwhelmingly trust banks and credit unions more than they do full-service brokerage firms. The vast majority of trust clients (96%) and private banking clients (92%) place some or a great deal of trust in their banks, while only about half say the same about their brokerage firms.
Even so, brokerage firms have managed to grab a far greater share of client managed accounts. For example, 72.5% of private banking clients and 35.4% of trust clients hold asset management accounts at full-service brokerage firms. Only 39.7% of private banking clients and 20.7% of trust clients hold such accounts at their banks, according to the report.
Even though these wealthy customers trust their institution more readily, and declare strong preferences to deal with their institutions if these services were offered, their assets have yet to be deployed accordingly, the report notes.
The lost opportunity is substantial. Private banking clients have an average balance of $348,000 in asset management accounts, according to the report. By multiplying that by the percentage of clients holding asset management accounts outside the bank (72.5%), the bank can easily calculate how much it is forgoing in assets under management: some $252,000 for each private banking client it has.
Financial institutions that fail to solve these issues will face a continuing decline in share of the wealth management market as the wealthy find other providers who have organized their service delivery around the client, rather than an organizational structure that has failed both the institution and the wealthy, the report says.
The report, titled Maximizing Your Customers Experience Through an Integrated Wealth Management Offering, draws on data from MacroMonitor, the U.S.s largest retail financial services and marketing database, according to Cetera. It was produced in collaboration with Kenneth Kehrer, a principal of Kehrer Saltzman & Associates.