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
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.
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.
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.
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?
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.
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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Biz Briefs: The sorry scene at my local First Republic branch • Schwab launches new (smaller) lay-off round • Schwab hoovers pennies passing FINRA fee to clients • Gensler pleas for funds • Fidelity owner's private equity pres. retires • an Orion-Envestnet staff switcheroo • LPL dumps FutureAdvisor
Range Rovers screeched in and drivers joined a grim queue to get their cash, and cookie • The Schwab-TDA deal cull count now stands at roughly 3.5% of its staff • FMR's hockey star president has stepped down • SEC chief wants more enforcers • An Envestnet executive proves joining a rival is good business • LPL now has an in-house robot.
April 29, 2023 at 1:36 AM
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Tax-loss harvest gains may have some home assembly required, says Jeff DeMaso • Adrian Johnstone is now in the driving seat at Practifi • CFP Board spending just topped $150 million • and Vermont shares some Texas thinking on ESG investing.
March 25, 2023 at 1:32 AM
Fidelity will hire 4,000 staff in first half -- a staggering number but a tapering off from 'unprecedented' rate in 2021-2022 that catapulted it to 68,000 employees
The $10.3 trillion giant explains its hiring -- in a layoff environment -- as an RIA-like goal, namely having the human bandwidth to develop 'lifetime' relationships with its 40 million investors
February 17, 2023 at 2:49 AM
Alois Pirker sets up shop in Marblehead by taking a page from the RIAs he advises
The former Aite-Novarica consulting chief wants the latitude of Pirker Partners to take the gigs he wants and avoid corporate consulting economics -- namely selling reports.
January 21, 2023 at 5:03 AM
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