Jeff For Banks

Four Ideas on Bank Retail Investment Sales

Bank Investment Consultant magazine recently published the results of a bank/credit union investment sales benchmarking report from Kehrer Bielan Research and Consulting. The report, as cited in the article, (via @CUInsight) stated credit union investment revenues equated to $360 per million in share deposits, and that number was 21% greater than in banks, implying bank reps achieve $298 per million in deposits.
So if an investment rep covered $500 million in a credit union, he/she achieved $180,000 in gross production. A bank investment rep would achieve $148,750 for the same coverage. However, the article also stated that credit union reps produce less in gross production than bank reps, implying that bank reps cover more deposits. 
Bank investment sales is treated as an inconsequential line of business in most financial institutions, in my experience. My firm measures line of business and product profitability for dozens of community financial institutions, and hardly any of them make real money in retail investment sales, if they make any money at all. The most profitable program that we measure, on a pre-tax profit as percent of revenue basis, is one that is totally outsourced. The rep is a full-fledged employee of the third party broker-dealer, and the bank incurs little expense from it. It also receives little revenue. But it’s profitable! Little is the operative word here.
Why does this line of business languish in our financial institutions? I think the answer comes back to attitude and execution. Because it can’t be because our customers don’t demand it. At the end of 2013, US registered investment companies managed $17.1 trillion in assets, while bank assets in all FDIC insured financial institutions was $14.7 trillion for the same period.
Here are a few ideas on how to turn this significant opportunity into a meaningful profit contributor to your financial institution:
Grow your own reps. So often we associate success with this LOB by plucking a higher producing rep from a brokerage firm because we want his/her book and to get profitable quickly. Why would a high producing rep join a bank that has limited products and lower payouts? Most won’t although bank leads may be enticing. But, let’s face it, as a brand for investment sales, most banks don’t or can’t achieve the panache of having Merrill Lynch on your business card. So grow your own reps. Pluck them from your ranks of junior professionals such as branch managers, credit analysts, marketing analysts, and perhaps, directly out of college.

Build a real program. A rep should be assigned a specific cluster of branches in an area that makes geographic sense. Each branch employee should be treated as a Center of Influence (COI) for that rep to source business. Each rep should develop a regimented calling program that includes internal bank customers, COI’s, community outreach, and new relationship development. The Marketing Department should be tasked with assisting the rep along the way by mining data, developing mailing lists, coordinating educational events, etc. As the rep gets more experienced, he/she should expand internal COI’s to include commercial lenders, who would tend to have leads to bigger fish with more sophisticated financial needs. As one senior lender once told me, “we’re not going to refer our customers to some 25 year old that doesn’t know squat and won’t be here next year.”

Customers are bank customers. Disintermediation was the dirty word that relegated bank investment sales to the bench. Better to let Charles Schwab take our customer money than to let an internal bank employee, right? Because that is what happened. And by the way, Charles Schwab has a $100 billion in assets bank. That’s right, you read billion.

Another reason banks are reticent to move this LOB forward is because the business has traditionally been closely tied to the rep. If the rep leaves, then so go the customers. So build a program where multiple employees serve the customer and are part of a well-oiled system that exposes the customer to numerous employees.

Part of such a program should include Personal Financial Management (PFM) tools. I remain confounded why, in such a digital age, I must build my family’s balance sheet annually in Excel. There are tools, and many banks have them, that essentially allow customers to view their entire financial picture on one platform… PFM. A successful retail investment sales program would set customers up, and train them, on using a PFM tool that allows them to view their entire financial picture. The more your customers use your PFM tool, the stickier they become to your institution.

Also, create an environment that is collegial and collaborative, making for an overall more pleasant experience for the rep as opposed to the “eat or be eaten” world of brokerage. Why would the right rep want to go to Acme Brokerage to cold call, do their own work, pay for their office, source their own leads, and have a sales manager shout expletives at him/her because he/she didn’t meet their monthly production goal? But if they do choose that path, you have built the environment to make it very difficult for customers to want to leave your bank.

Build better reps. The days of graduating college and do no further learning are done. To be a licensed investment representative, you must minimally acquire your continuing education (CE) credits. That will not distinguish your reps from peers, because all must do it. There are professional certifications, such as Certified Financial Planner (CFP), that can distinguish your rep from others.

Sure, a rep can achieve the CFP certification and then bolt to a competitor. But you can protect yourself when making a large investment such as CFP by paying for it in the form of a forgivable loan. If the rep leaves before the forgivable period, then the amount expended immediately becomes a loan to that person.

And don’t limit your rep development plan to financial matters. Money is very personal to people, and human skills are essential. Sometimes, the highest producing reps are so focused on driving revenue, they transform into a boiler-room broker. Remember, they are bankers. With that title comes trust, security, and integrity. Don’t turn them into Gordon Gekko.

Getting back to profitability… it is reasonable to expect a retail investment sales program to generate $360,000 in revenue for every $1 billion in deposits. Further, based on our experience measuring profitability and the profitability of public retail brokerage firms, that this line of business could achieve pre-tax profit margins of 30%, dropping $108,000 in profits to your FI’s bottom line. That is profit that requires little equity, and no balance sheet assets. Calculate that ROA or ROE!

What do you think is lacking in bank / credit union retail investment sales programs?

~ Jeff

4 thoughts on “Four Ideas on Bank Retail Investment Sales”

  1. Why are banks/credit unions lacking retail investment sales programs?

    1. Short-term focus. The programs did not generate they profits forecasted. Why?

    2. Management did not find the right people for its retail investment program nor did it support it with the right resources.

    3. The real reason. Lack of a solid plan to really have a retail investment sale program. Management was not 100% committed to the program.

    Banks/credit unions have so much excess liquidity TODAY. They also have the best information on their customers (hmmm…so a auto-withdrawal comes out at the same time every month paid to the same investment firm…or insurance company…or whomever). Retail investment programs should be a slam dunk.

  2. Definitely agree!

    If the CEO was the former CFO, they are comfortable managing the balance sheet. If a former CLO, they focus on commercial lending.

    To a hammer, everything is a nail.

    Thanks for the comment!

    ~ Jeff

  3. Anonymous again (Just a regulator undercover…shhhhhh!)

    From Sept. 30, 2014 Banc Investment Daily:

    At the same time, banks are identifying product lines with
    potential for growth, and one surprising survey result showed that
    32% of the respondents expect asset and wealth management to
    be the biggest driver of revenue growth over the next 3 to 5Ys.
    This comes in ahead of C&I lending (28%), capital markets
    activity, cross-selling and all other sectors of lending. There is
    also a generational shift underway with the retirement of the baby
    boomers, but the boomers have always tended toward do-ityourself
    solutions rather than looking to full- service providers like
    banks. If this were expected to continue, would it make sense
    that there is significant opportunity in wealth management?
    Clearly wealth management offerings will need to reflect the
    same ideal of seamless interaction between digital channels and
    the availability of qualified advice. The only way that wealth
    management could be a primary driver of growth is through
    adaptation of services to meet the needs of the do-it-yourself
    generation. Those services will also need to transform to offer
    greater assistance as customers age and need more help.
    Community banks will be dependent upon outside providers for
    this integration, especially on the technology side and therefore
    banks should take extra care in choosing providers that will be
    able to adapt to changing customer needs going forward. At the
    same time, staff should be comfortable with a broad assortment
    of solutions and have the real ability to solve problems. By
    focusing on these areas, you stand to propel your bank toward
    the level of service and expertise that customers expect and that
    should have your bank well-placed for the future.

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