Jeff For Banks

Bankers: Build Your Own Wealth Management Platform

Will millennials come to your financial institution once they’ve acquired the investable assets to make your Trust Department interested? 
Community banks must think so, because I don’t hear many strategies centered on helping customers build wealth from early to late. Got $500,000 in investable assets? Boom! You’ll start hearing from bankers, financial planners, and investment advisers alike. Want to start saving with $100/month. *crickets*
I wrote a blog post in 2015 about banks building their own small business loan platform. The reason: bankers tend to ignore small businesses until they are “bankable”, meaning they have real estate collateral to borrow against. Well what about all that time from early stage to stable business? Credit cards still fill the breach. But into the fight came OnDeck, Kabbage, and Funding Circle. Ignoring a prospective customer until a bank is ready for them, risks that the customer may never be ready for the bank.
So, do we stand on the sidelines and let others serve Early Savers and hope bank sales forces are sophisticated and successful enough to woo them back once they meet bank thresholds?
I think this is a risky strategy. So let me suggest this to you. Build your own wealth management platform. (see below)
I will concede that banks work to get savings accounts. It is the platform that provides you with low-cost, core funding. But do you strive to grow number of accounts, or to grow savers? Does your bank have a savings account that could be opened for $100 without a monthly fee? Can branch or call-center personnel assess savers’ goals and outline a path to become that high net worth or mass affluent individual or household I hear that bankers crave so much? 
Because, unless you are bequeathed with family money, we all started with a buck. Who, in your bank, will talk to customers when all that they have is that buck, and teach them to plant it, water it, give it sunshine, and turn it into real wealth?
Or do we open the savings account and hit the monthly number-of-account target?
Once enough money is built up in savings, then what? The Financial Planner doesn’t want a $20,000 account. No problem. Robo-Advisers will take them. Side note: According to the President of Wealthfront, robo-adviser is a derogatory term. He prefers “automated investment services”. Sorry to hurt your feelings fella.
Robo-Advisers, including Wealthfront, Betterment, SigFig and others are projected to manage $2 trillion in AUM by 2020, or 6% of all AUM. So they’ll take that $20,000 account, and add $200/month to it.
No worries, right? Once that saver builds up that nest egg at WealthFront, they’ll be knocking at the bankers’ door to seek advice! C’mon. You Can-Not Be Serious! *insert John McEnroe voice*
So why doesn’t your bank collaborate with a Robo-Adviser for this period of wealth accumulation? They are anxious to work with banks, including white labeling, so you will continue to have access to the customer although the Robo will be managing those investable assets. Create trigger points to contact customers to schedule appointments with your Financial Planners as customer needs evolve and grow. 
I modeled this relationship out in the accompanying table and infographic. I assumed the customer would go through four phases, each with differing needs of advice and sophistication: Early Savers, Wealth Striver, Future Planner, and Wealth Maximizer and Harvester. I then assigned number of years to be in each phase, and the average balance of the savers’ accounts during those phases (see table).
To arrive at the Lifetime Value calculation, I used the average profit per year, for the year the platform earned the profit, and discounted it back to present day using a 10% discount rate. For the Wealth Striver years, I used a 20 basis point marketing fee against no expenses to calculate the average pre-tax profit. As one would expect, the present value of the profits in the Wealth Maximizer/Harvester years was the greatest, at $822 (see infographic). But the Future Planner and Wealth Striver years aren’t so bad either. And, in my experience, banks aren’t very interested in the Wealth Striver phase.
Odd because the lowest present value period is the Early Saver. That is where Wells Fargo had a big interest to meet their number-of-accounts goals. 
Would banks be better off thinking about their customers’ wealth journey as depicted in the infographic? Do we think about it this way? Can your bankers advise those Early Savers on how to chart the course to become Wealth Maximizers?
Do we have the product set to help customers at each stage? Or do we pick our spots, let customers find their own way at our bank or elsewhere, and hope they come back when they are more valuable to us?
What’s your strategy? Please don’t say “hope”.
~ Jeff

1 thought on “Bankers: Build Your Own Wealth Management Platform”

  1. nice information on wealth management, for better investment, planning should be well researched, wealth management company plays a better role in giving advice to their clients to take informed decision

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