Banks Expect Wealth Management Practices to Grow 25 Percent in Next Five Years

Fidelity® Study Uncovers Five Key Traits of “Pacesetters” and Five Challenges to Overcome

BOSTON – Fidelity Institutional, the division of Fidelity Investments® that provides clearing, custody and investment management products to registered investment advisors (RIAs), banks, trusts, broker-dealers and family offices, today released findings from the inaugural Fidelity® Bank Wealth Management Studyi, for which the firm interviewed more than 140 senior bank executives. The first-of-its-kind study found that many banks are repositioning for growth, and looking toward new revenue opportunities, particularly from fee-based businesses like wealth managementii. This shift comes after several years in which banks were focused primarily on compliance and cost managementiii. Over half (55 percent) of the bank executives who participated in the Fidelity Bank Wealth Management Study expected the revenue contribution from their wealth management practices to grow 25 percent or more in the next five years.

Although the future of wealth management appears positive for banks overall in this study, given the expected growth rate, a group of Pacesettersiv stood out from the pack with wealth management typically estimated to represent 35 percent of total bank revenue in the next five years, versus 20 percent for other banks. The study uncovered five key traits of Pacesetters and five challenges to overcome for continued success:

5 Key Traits of Pacesetters5 Challenges to Overcome
1. Leadership commitment and a continued focus on wealth management1. Investor perceptions
2. Integration, not competition, with other bank lines of business2. Internal development and training
3. Comprehensive wealth management service offerings3. Streamlining platforms
4. Leveraging the RIA approach4. Recruiting and retaining advisors with wealth management expertise
5. Outsourcing non-core back office operations5. Keeping up with technology


“While some may assume that Pacesetters were the largest banks or clustered in certain regions, our study found that what really set these firms apart was how they run their wealth management practices,” said Mike Norton, head of the banking segment for Fidelity Institutional. “Pacesetters recognize that wealth management not only offers significant revenue-generating potential for banks, it also presents an important client engagement and retention opportunity.”

Five Key Traits of Pacesetting Firms: It Starts at the Top
While Pacesetting firms held almost twice the assets of other banks ($6.0 Billion for Pacesetting banks versus $3.3 Billion), their size and structure closely mirrors all banks in the survey, indicating that size of bank is not the greatest determinant of success. The study uncovered that five key traits set Pacesetters apart:

1. Leadership commitment and a continued focus on wealth management -- The study showed that, typically, senior executives at Pacesetters were highly focused on the wealth management business, and committed to growing and developing it. This focus can be difficult as one interviewee noted, “I see a challenge in banking, structuring ourselves and ensuring the senior leadership has enough autonomy to be entrepreneurial and run their line of business.”

2. Integration, not competition, with other bank lines of business -- When asked if they competed somewhat with other parts of their banks for client assets, 26 percent of all bankers said yes. However, Pacesetters were having more success addressing the issue -- only 16 percent cited this competition, compared to 35 percent of other banks. Respondents noted that integration was key, “[Clients] 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.”

3. Comprehensive wealth management service offerings -- Many respondents defined wealth management as a holistic relationship that goes beyond deposits and lending -- all wrapped together with a high level of service. In the words of one banker surveyed, “It’s the bringing together of all of our capabilities to help clients build, maintain, protect and transfer wealth.” According to the study, Pacesetters were more successful in executing on this philosophy and focused less on products that may be considered more commoditized, such as insurance and annuities.

4. Leveraging the RIA approach -- While the study showed that stand-alone RIAs were not viewed as a significant competitive threat for wealth management practices at banks, a large proportion of Pacesetters (83 percent) were using RIAs as part of the delivery model. An interviewee elaborated, “The RIA model I think…will be increasingly popular…Part of that is fee-based. Part of that is a little bit more perception.”

5. Outsourcing non-core back office operations -- When asked about outsourcing, bankers interviewed said, “I think you can outsource most of the functionality in back office.” The study showed that Pacesetters seemed to have experienced more success than other banks with outsourcing non-core operations and increasing advisor productivity.

Five Challenges to Overcome for Continued Growth
While banks’ wealth management practices are doing many things right, Pacesetters surveyed felt they needed to continue to hone their wealth management practices and manage:

1. Investor perceptions -- Eighteen percent of Pacesetters felt clients think banks lack the investment expertise or breadth of services that other channels offer. As one banker put it, banks need to “overcome the perception by some that a bank is only there for loans and deposits and that wealth management is not a strength of an individual bank.”

• Take-away: Ensure leadership is focused on showcasing the breadth of the bank’s wealth management offerings and consider partners that can help improve branding and marketing efforts.

2. Internal development and training -- Thirty percent of Pacesetters felt they needed training to help grow the business -- such as how to increase share of walletv or how to get referrals. At the same time, nearly one-quarter of Pacesetters cited cultural differences between the banking and wealth management sides of the business as a challenge.

• Take-away: Devoting additional resources to training can help improve capabilities and confidence levels, while optimizing practice management efforts may ease cultural discord and competition between different areas of the bank. Together, these efforts can help nurture additional and stronger wealth management relationships.

3. Streamlining platforms -- Nearly one-quarter (23 percent) of Pacesetters said they had isolated and competing platforms across banking functions with bankers surveyed responding, “You have multiple platforms that don’t necessarily talk to each other.”

• Take-away: Banks can benefit from one view of all existing relationships and reduce inefficiencies with a robust platform that can integrate accounts from brokerage to wealth management.

4. Wealth management expertise -- Nearly half of Pacesetters (45 percent) said they found it challenging to increase the number of advisors/wealth managers, a critical path to their growth.

• Take-away: In addition to focusing on recruiting efforts, banks may want to consider leveraging an RIA to demonstrate wealth management expertise and expand resources.

5. Keeping up with technology -- More than half of Pacesetters (58 percent) felt keeping up with technology was a challenge, as it was for all banks surveyed.

• Take-away: Banks can leverage the scale of outside firms to keep up with ever-changing technology.

Fidelity created the white paper, Perspectives on Wealth Management in Banks: Insights from Pacesetters, to help banks better understand how leading firms have established growing wealth management practices and what steps leaders can take in their own firms. For more details, visit nationalfinancial.com or contact your Fidelity Representative.

About Fidelity Investments
Fidelity Investments is one of the world’s largest providers of financial services, with assets under administration of $4.5 trillion, including managed assets of $1.9 trillion, as of January 31, 2014. Founded in 1946, the firm is a leading provider of investment management, retirement planning, portfolio guidance, brokerage, benefits outsourcing and many other financial products and services to more than 20 million individuals and institutions, as well as through 5,000 financial intermediary firms. For more information about Fidelity Investments, visit www.fidelity.com.

 i The research was conducted by Market Strategies International, an independent firm not affiliated with Fidelity Investments, and consisted of two phases: (1) a qualitative phase that involved 12 in-depth phone interviews of approximately one hour in length (blind; Fidelity not named) conducted in mid-October to early November 2013; and (2) a quantitative phase that involved 132 online/phone 15-minute interviews conducted in late November through mid-December 2013 (blind), where completes were weighted by total bank assets to ensure the findings are representative and projectable to the universe of U.S. large to mid-size banks. The sample for both phases included: U.S. large and mid-size banks that have a wealth management practice (excluding the following banks: Bank of America, Citibank, JP Morgan Chase, and Wells Fargo); banks with a minimum of $500 million in total assets (excluding deposits and assets from trust and wealth management activities); C-level executives and other corporate decision-makers who are involved with the strategic direction of the bank/wealth practice, or lead a group of wealth management advisors or trust officers.
ii A wealth management offering was defined in the Fidelity research as including: private/premium banking, trust management services, securities/brokerage, wealth advisory, investment management, and RIA services.
iii “2014 Banking Industry Outlook: Repositioning for Growth,” Deloitte Center for Financial Services, January 21, 2014.
iv These banks have wealth management practices that contribute more than 20 percent to the institution’s overall revenue, and they have experienced more than a 2 percent growth in this contribution over the past two years. Pacesetters represented 31 percent of all banks in the study.
v Percentage of assets a bank has of a client’s total assets.

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