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Bankers show muted confidence in competing with RIAs, Fidelity study shows

The projections from the most optimistic set of bankers predicts sub-5% growth annually, even on steep part of growth curve

Author Brooke Southall March 6, 2014 at 9:32 PM
no description available
Mike Norton: They need new sources of revenue -- especially recurring revenue.

Anony Muss

Anony Muss

March 6, 2014 — 10:51 PM

I think banks struggle with the putting clients first fiduciary thing… and they always will. In many ways banks are as corrupt as brokerages in their reliance on taking advantage of customers and getting away with it… dinosaurs.

Jeff Spears

Jeff Spears

March 6, 2014 — 11:01 PM

Never say never BUT the net interest margin is too large for banks to cannibalize.

Wealth management inside of a bank with a K or a bank with a C is an anachronism.

Jamie McLaughlin

Jamie McLaughlin

March 7, 2014 — 7:17 PM

It’s too easy to beat up on the banks. For a long time they deserved a good beating, but no longer and most people in RIA-land underestimate them; perhaps at their own peril.

Banks have an inherent regulatory advantage to serve wealthy clients (credit/balance sheet management, trust powers, and investment management), in a post-2008 environment they’re perceived as safe and durable, and, most importantly, they enjoy an enormous capital advantage, the Achilles heel of RIAs.

Their primary challenge has been internal where executive management teams (i.e. capital allocators) face pressure from The Street for return on equity (ROE). Bank senior executive teams are almost without exception unfamiliar with wealth management, a lower ROE business, and have for many years chosen to fund other lines of business (LOBs).

The severe pressure on net interest margin (NIM), however, has changed all that. LOBs that can produce non-interest revenue are now in favor. What better place to invest than in their wealth management businesses which require no regulatory capital.

Banks have many imperfections and cultural challenges, but they’re not sitting still.

Brooke Southall

Brooke Southall

March 7, 2014 — 7:29 PM


Great thoughts and i can tell you know more about banks than me.

My counterargument is to play on your own counterstrike — namely the internal struggle at banks.

I see where you are saying that wealth management doesn’t put pressure on the, to use a sports metaphor, salary cap and so that there has been a fundamental shift in incentives. That may be true at a macro-level.

But the devil seems deeper in the analysis. You can hire a whole branch worth of loan officers for the price of one silver-maned wealth management producer. And that silver mane needs about four times the recognition and prestige bestowed to keep his/her chin up, and away from headhunters.

This is something that RIAs, and even wirehouses address inherently. Banks, not so much, right?



Anony Muss

Anony Muss

March 7, 2014 — 8:09 PM

Unfortunately, banks purchased brokerages, and are now just as conflicted as brokerages… they are falling all over themselves to pretend like they are offering fiduciary advice at the same time they are selling products. They are doomed to fail. Don’t you think an RIA can partner up with dedicated trust companies, brokerages, insurance companies, etc.. and offer the same services on a fiduciary basis using open architecture. I just quit BofA for my business. What a disaster.

Jamie McLaughlin

Jamie McLaughlin

March 10, 2014 — 1:19 AM


I don’t have a dog in this hunt which is why I commented in the first place. In fact, if I have a bias, it’s clearly in support of RIAs who (usually, but not always) have a much better alignment of interests with the client. There is no doubt that in the short term and unless bank senior managements embrace structural and cultural change, a pronounced demand from clients for an alignment of interests with their advisor and their firm will favor RIAs over banks. My caution, however, is not to dismiss banks as some sort of monolith.

To your direct comment – banks underpaid their talent with direct compensation for a long time. Over the past 10+ years (certainly, well before 2008) they have modified their compensation structures for wealth management LOBs to reward growth, client retention, and teamwork with a combination of direct, variable, and long term compensation that is now the equal of any non-equity owning RIA employee’s compensation. Further, they have made significant commitments to training and professional development. In summary, they have become much better workplace environments.

Last, and to address Mr. Muss’s comment about bank-owned broker-dealer (BD) affiliates. In my view, BD affiliates cannot co-exist within a bank with separate LOBs competing for a wealth management client. These bank-owned BD affiliates are often the first line of “investment” people bank customers encounter on bank platforms where they sell commissionable products such as insurance and variable annuities. These units are dilutive of a parent bank’s attempt to build their brands and compete for an advisory role in their separate wealth management and/or trust LOBs. Bank of America may be the poster child.




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