By now you are neck-deep in planning and budgeting for 2023. What metrics are you managing to as you look to the year ahead? Revenue growth? Assets? Profit margin?

From our perspective, the core objective of the investment services unit inside a bank or credit union is to serve the investment services needs of the institution’s customers or members. So, we have counseled the industry to measure its penetration of that opportunity and make improving it a focus of their strategic planning. The measure of penetration we have used most often is revenue penetration of deposits (i.e., investment services revenue per million in bank deposits or credit union shares).

Yet, at a recent gathering of investment services directors, only one pointed to deposit revenue penetration as a KPI for their firm. Why? Perhaps it’s because the recent explosion in deposit balances has made it difficult to assess performance relative to that yardstick. Top line revenue increased 25% during 2021 in the firms that participate in our annual benchmarking survey, but revenue relative to core deposits/shares remained essentially flat, causing some to question whether deposit revenue penetration provides an accurate picture of what took place during the year.

The number of retail customer households in a bank, or member households in a credit union, provides an alternative measure of the size of the opportunity for the investment services unit. Because household count has not been impacted by the same forces that have driven deposit growth (federal stimulus, rising interest rates, etc.), revenue penetration of households may be more useful than deposit penetration during this unique period. Indeed, average investment services revenue per institution household improved 31% during 2021, even as revenue relative to deposits remained flat.

There is a similar debate brewing around how to measure advisor performance. The typical measure, annual GDC per advisor, is proving less relevant as more of the business shifts to fee-based and market performance accounts for a greater share of an advisor’s annual production in any given year. We believe that asset acquisition (new assets brought into the firm) and net new assets (inflows minus outflows) provide a better window into advisor performance, and that firms should make those measures central to how to they manage and compensate their advisor force.

The case for prioritizing household penetration, new assets, and net new assets in a firm’s management reporting is clearly very strong. But very few financial institutions and their investment services units track them. Among the firms that participated in our annual survey covering 2021, fewer than 1 in 5 were able to report these three datapoints, despite their growing importance. Better tracking and reporting of these items is clearly needed.


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