Banks are ceding their wealth funnel advantage, says Cerulli

Banks are seeing significant growth in their deposit bases, but their wealth management assets are not keeping pace – which means they're sitting on a yet-to-be-maximized opportunity, according to a new report by Cerulli Associates.

According to the Cerulli Report on US Private Banks and Trust Companies, domestic deposits at US banks have grown by $3.2 trillion in the decade since 2013, translating to a nearly 110 percent increase. In contrast, their wealth management assets have risen by only $739 billion, representing 81 percent total growth over the same period.

The disparity between deposit and wealth management growth is mirrored by a rising number of clients who use only traditional banking services. In 2017, 30 percent of bank clients opted solely for traditional banking; by 2024, that number had jumped to 56 percent.

“Banks have been highly successful at growing [deposit] programs,” Matt Zampariolo, research analyst at Cerulli, said in a statement. “However, they have yet to fully capitalize on the increased flows of deposit dollars by transitioning them to their wealth management practices.”

The report notes that many banks are missing an opportunity to integrate wealth management more effectively into their core offerings. While banks have bank-specific advantages, such as comprehensive financial services and the potential for internal referrals, these have not been fully leveraged to grow wealth management assets.

As the US witnesses substantial wealth creation and escalating demand for recurring non-interest-rate revenue, Zampariolo encouraged banks to go beyond considering their wealth units as secondary businesses. Instead, he says they "must show willingness to support [their wealth divisions] ...  as a core offering and value-add service to their clients.”

Programs to incentivize internal referrals could play a key role in closing the gap. Among bank executives surveyed by Cerulli, 82 percent agreed one-time flat-cash bonuses are the most successful method for incentivizing referrals from bankers to wealth managers. Other respondents pointed to non-monetary levers, such as banker recognition programs (27 percent).

“Banks have an irreplicable opportunity to be the first and final stop on an investor’s financial journey,” Zampariolo said, suggesting that they "increase synergies between bankers and advisors in order to capture and maintain wealth management assets in the long run."

Of course, in order to do that, banks will need to to maintain a solid stable of financial advisors. That could prove challenging, as 70 percent of bank executives in Cerulli's survey research identified talent recruitment and retention as the largest challenge for their wealth unit.