With this newsletter, we continue our series presenting summary views on areas in which we specialize. (Our two previous newsletters focused on Small Business and Middle Market banking, respectively.) This week, we highlight some major themes and outline tactics to improve performance in the Wealth Management arena.
Wealth Management Basics
Wealth Management can be a significant growth opportunity for banks. However, for many, success requires overcoming significant organizational and cultural roadblocks.
Wealth Management provides banks with a dramatic growth opportunity. For a number of reasons, Wealth Management should be one of the fastest growing areas of a commercial bank. First, industry growth expectations are high. One analyst’s report projects assets-under-management growth in the 8-12 percent range and profit margins in the 30 percent range.
Second, it is an underexploited franchise at many banks. It has only been within the past 12-18 months that many banks have started to assess the extent of their Wealth Management opportunity or to link that group to other areas of the bank.
Third, banks continue to hold a position of trust with their customers. Banks can build off that trust to serve the customer segments most open to a bank relationship in this area.
Banks need to define what Wealth Management means to them. Banks need to assess their internal capabilities and external market reputation as well as the demographics of their potential clients and, then, determine where they should focus. For example, relatively few banks can build a market presence in the family office area; these ultra-wealthy clients demand a level of service and expertise that only a handful of banks can provide. However, many banks may find their sweet spot to be serving those individuals with $1-10 million (or less) of investable assets.
As with Small Business and Middle Market, a segmented approach is key. A number of players employ a tiered approach, with different offers for mass affluent versus wealthy customers.
Wealth Management bankers need to come clean on whom they are currently serving. Just as business bankers often spend too much time on low revenue-generating accounts, so too do wealth bankers often spend significant amounts of time serving customers whose potential fails to justify the level of service they are receiving. However, bankers point out (rightly so) that if they transition an under-performing client to a more appropriate area of the bank, their level of assets-under-management, an important compensation metric, decreases.
The best banks are aligning sales and service channels with different types of customers, shifting smaller accounts to sophisticated call center environments and focusing relationship managers on higher-end accounts. At least one bank we know has built into its compensation plan a component to incent “right-channeling” customers and mitigate the corresponding decline in assets under management.
The mass affluent customer should belong to banks. Banks may be missing a major opportunity by aiming too high on the Wealth Management scale. There are many more customers with $100k to $1 million to invest versus those with $1 million-plus. Nonetheless, most banks overlook this segment in favor of “bigger fish.” For competitive insights, look to Bank of Americas Premier Banking or Wachovia’s mass affluent approach.
Wealth Managers need to develop an intense sales culture. In our last newsletter, we mentioned that Middle Market relationship managers are spending much less than 50 percent of their time on sales activities. We find a similar situation with those who are supposed to be lead sales people for Wealth Management. Reactivity rather than proactivity dominates; service not sales remains the focus; self-satisfaction with low levels of growth is rife.
The sales culture within Wealth Management needs to change dramatically. This will happen by some wealth bankers undergoing a Pauline-like conversion to sales. At the same time, management will bring in new sales blood in order to build a sales emphasis.
Leverage your internal bank centers of influence. Our experience with Wealth Management groups indicates that, historically, they have operated as a silo separate from the rest of the bank…no more. Leads should flow to Wealth Management from retail and commercial banking, and the lead stream must be two-way. Banks that fail to leverage existing bank relationships for leads face slower growth.
Optimal Wealth Management sales begin with a financial plan. On the commercial banking side, we emphasize the need for an annual account plan. This plan helps bankers to provide their clients with a review of the current relationship as well as the basis for a discussion of additional product sales.
Wealth Management groups also need to operate with a plan, in their case a financial plan that diagnoses their customers’ and prospects’ needs in five related areas: investments, trust, credit, cash management, and advisory. One client cites a competitor that has found customers for whom a personal financial plan has been completed generate 60 percent higher revenue than those without. Plans serve both the end client and the banker; a great win/win.
Conclusions
From the above, it should be clear that many of the same sales and organizational issues faced by commercial bankers are also common to wealth managers. Segmentation and selection of priority target customers is key; a strong sales culture needs to be built and given prominence over a reactive approach to selling; a disciplined planning process needs to be established and implemented with consistency.
Wealth Management represents one of the most significant growth opportunities available to the banking industry. Top management must demand intra-bank cooperation and a strong sales effort if banks are to capture their fair share of this growing revenue stream.