Cross-selling a dud so far for advisers and banks, survey finds

Rewards not great enough to persuade wealth managers to sell investment products to retail banking customers

Sep 9, 2011 @ 11:24 am

By Lavonne Kuykendall

After suffering major revenue shortfalls from their mortgage and credit card operations, big U.S. banks are looking to their wealth management businesses to help pick up the slack. But to date, they aren't getting as much traction as they expected from efforts to cross-sell investment products to their bank customers.

One-third of 75 bank financial advisers surveyed online by Aite Group LLC during the first quarter said they generated no revenue from internal referrals. Another third said internal referrals generated some revenue, but less than 25% of their previous 12-month total. Only a third of the respondents said internal referrals generated more than a quarter of their revenue, but many of those got much of their business from mass-market retail bank customers, who tend to be more time-consuming and less profitable.

Part of the problem could be the way banks reward advisers, and whether they promote a commission or fee-based business model, according to Aite's report.

“Banks need to put together a compensation plan that rewards bank advisers and promotes the achievements of advisers who leverage internal partners and have a diversified business model,” said senior analyst Sophie Schmitt, who conducted the study. “Banks need to find these successful advisers and study them. Maybe they can expand this group.”

Advisers who did substantial business through internal bank referrals split into two groups — those who mainly pursued mass-market accounts of less than $250,000, and those who went after business from bank brokerage phone centers, private, small-business and commercial bank customers. Those advisers tended to have larger, more profitable accounts.

But overall, sales and revenue generated by internal referrals were more likely to be of commission-based products such as annuities and 401(k) plans, and one-time consulting fees.

Ms. Schmitt said that brokerage leaders have been “showcasing financial advisers that have shifted their business from commission-based to fee-based,” even though those advisers don't necessarily use internal referrals to generate business or cross-sell banking products. She suggested that banks need to develop a preferred business model and develop incentives for advisers who follow it.

“Advisers may change if they see another adviser who is more successful who is working with partners,” Ms. Schmitt said.

Howard Diamond, the managing director and chief operating officer of recruiting firm Diamond Consultants of Chester, N.J., said he isn't surprised about the survey's results. He believes several factors are behind the low rate of internal referral business.

“Competition, compensation and cultural differences are all involved,” said Mr. Diamond. “For a long time, the idea of getting referrals from a bank enticed advisers to go to a bank platform.”

But once they get there, they run into some problems fulfilling the promise of plentiful internal referrals, he said.

Many branch-based advisers find that they are competing against other advisers, sometimes in the same branch, he said. Further, bank employees don't receive much incentive for passing referrals along.

“Say a customer service representative makes a referral, maybe they get $25 dollars,” he said. “The banker doesn't want to lose control of his client's assets,” especially for such a small reward, he said. “Every financial institution wants 100% wallet share of their clients, but they don't care how they do it, or who gets that wallet share.”

In the case of small business and commercial bank or private bank customers, they may need banking services such as lines of credit, which strengthens their ties to their banker, and they may end up using private bank wealth management services or an outside firm.

The cultural disconnect between traditional wirehouse representatives and their bank ownership causes many to feel little reason to center their business around bank customers, he said.

Tuesday's firing of Sallie Krawcheck from her job running Bank of America Corp's Merrill Lynch unit is a case in point, Mr. Diamond said.

“Our phones are ringing off the hook,” with representatives calling the recruiter, he said. “It isn't so much that they loved Sallie necessarily, but to the Merrill Lynch adviser it is more about the bank taking over a world class wealth management firm.”

A call to Bank of America seeking comment was not immediately returned.


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