Bank executives adopting the RIA model as they build wealth units, Fidelity study finds

Fastest-growing units are turning toward fee-based investment and planning advice

Mar 5, 2014 @ 1:31 pm

By Trevor Hunnicutt

RIAs, bank brokerage, fee-based management
+ Zoom

If it walks like an RIA, and talks like an RIA, it may be a bank.

Bank executives are adopting the model of registered investment advisers as they build their wealth management units, but they don't yet see those firms as their biggest competitors.

That was one of the conclusions of a first-of-its-kind study released Wednesday by Fidelity Investments that asked 144 executives at large and midsize banks about their approach to a market segment on which they are increasingly relying to fulfill their growth ambitions. The study excluded Bank of America Corp., Citibank Inc., JPMorgan Chase & Co. and Wells Fargo & Co.

The fastest-growing bank-owned wealth management units are turning away from offering commodity products such as insurance and annuities and toward fee-based investment and financial-planning advice, Fidelity said.

More than eight in 10 of those top performers have relationships with RIAs.

“Traditionally, banks have been very focused on selling products — and maybe not less sophisticated — but didn't really offer the breadth of products that were available through wirehouses or traditional channels,” said Mike Norton, head of the banking segment for Fidelity Institutional.

At the same time, only a fifth of the bank executives see RIAs — which more commonly deliver financial planning-focused and broad wealth management services than other financial advisers — as the top threat.

More than three quarters of banks see other banks with wealth management offerings as their top competitor, compared with 42% who see discount brokers as a threat.

The top banks are also bigger than their competitors, more focused on increasing the amount of a clients' assets that they manage and more likely to see wealth management as a bridge to new markets, including women, younger customers and new geographical areas.

Although more than one in five executives see acquiring an RIA as the way to expand their wealth management businesses, a Charles Schwab Corp. report released Tuesday found that banks bought no RIAs in 2013, a steep drop from years past when they accounted for half the acquisition market.

Some banks have struggled to integrate advisory practices, finding the business units' product mixes, technology standards and compensation packages to be at loggerheads with them, according to analysts.

And many RIAs bridle at the idea of bank ownership.

In October, Lon Morton, the founder of a fee-only RIA that was owned by Union Bank NA, purchased the firm that he had once sold so it could operate independent of bank ownership.

“They never seem to work well,” William T. Baldwin, a managing director at RIA Argent Wealth Management, said of banks. “They change the culture almost immediately.”

One-quarter of bank executives said that there are “cultural differences” between the banking and wealth management sides of the business, according to Fidelity.

“One of the cultural challenges that banks have faced over the years is the notion of who owns the client, particularly from the wealth management perspective; is it the adviser or is it the institution,” Mr. Norton said. “In my experience I've seen there's been a lot of progress made over the last 10 years.”

In the report, one anonymous bank executive is quoted as saying that customers “don't feel they've got a relationship with a commercial bank and then a separate relationship with wealth. It's one wallet from the client's perspective.”

Of the top 25 wealth management firms, six have units that are considered “bank channel” — Cetera Financial Group, LPL Financial, National Planning Holdings, SunTrust Banks Inc. and Wells Fargo — according to the most recent data from research firm Cerulli Associates Inc.

Over half of the executives surveyed as part of the report said that they expect revenue from the wealth management units to grow 25% or more in the next five years, according to Fidelity.

And the firms with the fastest-growing units are expanding the share of revenue that the entire banks earn from that business.

Among the challenges that these firms face, more than half of executives said that it is difficult to keep up with technology.

Other challenges cited were retention, breaking down silos between competing platforms, training, and investor perception of a lack of investment expertise or breadth of services, according to Fidelity.

Fidelity, an asset manager, also has an institutional arm that provides clearing and custody services to 220 bank clients as well as RIAs and other firms. Their researchers interviewed the executives between October and December.


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