Existential Challenge to Retail Wealth Management in Financial Institutions
Referrals from client facing branch staff are the foundation of retail wealth management in banks and credit unions. Access to the institution’s customers/members has helped the institution recruit and retain advisors, and pay them less than similar advisors in nonbank firms. But the days of branch staff referring up to 2% of their customers to branch-based advisors have faded in the rearview mirror. Branch traffic has shrunk, banks have turned away from the personal banker model in favor of peak load staffing, and referrals have steadily declined over the past decade.
This past year we witnessed a pause in that downward spiral. Institutions referred 0.8% of their customers/members to advisors, the same household penetration as in 2022. The referral flow was buoyed by the referral performance in banks with at least 25 advisors. On average, they increased their referrals 10%, providing a counterweight to the drop of referrals in smaller bank firms, where referrals fell 33%.
Referrals in credit unions, where referral penetration is generally lower, remained low. Is 0.6% the new normal?
Another way of viewing referral performance is how many referrals an advisor is given to work with. Through that lens, the typical advisor received 129 referrals last year, up 26% from 2022. Credit union-based advisors benefitted from 150 referrals, on average, an improvement of 36% year over year, and 50% more referrals than advisors in large banks. While household referral penetration is low, credit unions have much thinner advisor coverage of their branches than banks; they provide fewer referrals, but those referrals are spread across even fewer advisors.
Advisors in banks with at least 25 advisors saw a 21% lift in their referrals, but their peers in small bank firms received 14% fewer referrals. With little more than one referral a week to work, these advisors clearly need other sources of prospects to build their books.
“Referrals from client-facing branch staff have long been the backbone of our advisor recruitment and retention strategies, said Steve Lank, President of Financial Resources Group. “While the days of referring up to 2% of customers to branch-based advisors have faded, the fact that we’ve paused a downward spiral this past year is encouraging. This stabilization is a much-needed counterbalance to the declines we have seen recently. The findings underscore the need for innovative strategies to adapt to these changes. The Kehrer Group remains, year after year, an industry-leader in the research and consulting field for our bank and credit union investment services programs and we’re proud to partner with them and sponsor their research.”
About the Data
This Highlighter draws on data from the 2023-2024 Kehrer Group Benchmarking Survey. Kehrer Group has been benchmarking the investment services business in financial institutions since the early 1990s. There were 115 banks and credit unions, which deploy 4,590 advisors, that participated in this year’s survey during the first quarter of 2024. We publish the survey findings in three segments:
- Firms with at least 25 advisors (sponsored by Corebridge)
- Firms in Regional & Community Banks with less than 25 advisors (sponsored by Ameriprise Financial Institutions Group and Financial Resources Group)
- Firms in Credit Unions (sponsored by Ameriprise Financial Institutions Group and Financial Resources Group)
About Financial Resources Group
Based in Fort Mill, SC, Financial Resources Group is one of LPL Financial’s largest enterprises, providing customized services to financial advisors and financial institutions to help them grow their programs and practices. Representatives are registered through LPL Financial as their broker-dealer. https://www.financialresourcesgroup.net