From the November 2004 issue of Investment Advisor • Subscribe!

Custom Tailored

While banks would like to provide more retail advice to customers, they can't match the expertise and holistic approach of independents, at least not yet

Ken Robinson had a question about his mortgage. After meeting with his banker, Robinson--an independent financial advisor and founder of Cleveland-based Practical Financial Planning--decided to make a stop in the bank lobby, pick up a brochure on the various investment products his local bank had to offer, and ask to speak to his branch's investment representative. Like other independent advisors, Robinson was curious to see how the rep charged with offering financial advice and selling those products for the bank would approach him. Were these people really as aggressive as many of his peers had suggested they were? Did they try to foist products on people without first finding out about them, without engaging in a dialogue?

Sure enough: Within seconds of his leafing through the brochure, the rep was onto Robinson, as he had expected.

"Without saying anything more than 'Good morning,' without knowing who I was or what my objectives might be, the guy assumed I was early in my career, looking to invest for my retirement, and was comfortable with a great deal of risk. He said, 'I know what you need,'" Robinson reports. "It's a prime example of the lack of knowledge and training these reps have and of the approach used by banks" in the retail advisory business.

It is also an approach, Robinson says, that leaves many customers unhappy and dissatisfied, feeling that they have received inadequate attention and poor advice. Robinson's experience typifies the great divide between independent financial advisors and large-scale players such as banks and insurance companies, he says, and the seemingly irreconcilable ways in which those big companies provide retail advice.

While banks have been attempting to muscle their way into the retail advisory market, independent advisors say that they can never hope to corner it, since the banks have neither the ability nor the desire to foster the kinds of long-term client relationships that are integral to providing good advice. The bottom line for an institution like a bank is making a sale, independent advisors say, and while banks have the power to market themselves better than independents and leverage existing relationships with clients, they are more concerned with building commissions for the rep and profits for the bank than engaging in a more intimate and longer-term dialogue with clients about how to meet their goals and aspirations.

Dave Moran, an advisor with Evensky, Brown & Katz in Coral Gables, Florida, says that at a bank, "There is no relationship based on goals. If someone wants [such] a relationship, a bank is not the place for them."

A More Visible Presence

While Moran, Robinson and other independent advisors say they're confident that they won't lose out to banks, there's no denying that these big players are becoming more visible in the retail advisory business. Over the past decade, these institutions have been entrenching themselves deeper in this business, either through allocating increased resources to their retail advisory efforts or setting up planning divisions within banks, by partnering with financial advisors, or by acquiring independent advisory firms.

According to the most recent National Survey of Bank Investment Services, released on Aug. 31 by the American Bankers Association and its affiliate, the ABA Securities Association, profits from retail investment sales programs increased at more than 83% of banks in 2003. Experts say that banks are only going to get more interested in this business as the retail investor base continues to grow, so independent financial advisors will need to take greater notice of them.

The competition from banks will become greater, some experts say, if they start providing a more well-rounded, holistic approach to financial advice. Indeed, big retail banks such as Wachovia, Wells Fargo, and Citibank already have formidable retail advisory and wealth management businesses and could become a real force to reckon with if they are able to emulate the modus operandi of independent financial advisors.

Banks are aggressive in proposing their investment products and services to clients, particularly to middle market customers, some say, which is the largest growing segment of the country's investor base. Moreover, most banks already have longstanding relationships with high-net-worth individuals through their trust departments.

However, this does not mean, experts say, that banks have what it takes to succeed in the retail advisory business.

According to Matt Schott, a senior analyst for retail brokerage and investing at the Boston-based research firm TowerGroup, banks still lack the holistic approach needed to become a sustained presence in the world of retail advice. While banks have brand names, a strong market presence in various business areas that allows them to leverage their client base, and a solid technological advantage over smaller, independent advisory firms, they still have not perfected the approach of looking at a client's needs within the bigger picture and in the longer term.

"The independent advisors put themselves in the place of their clients and provide advice that is in the best interest of the client and not that of their firm," Schott says. "If banks want to be in this business in the longer term, they will have to change the profile of the advisors they hire. They are going to have to get away from the product-sale mentality and go after people who have experience in providing fee-based, holistic advice."

Finding the Right People

Some banks and insurance companies already understand that this is the way to go, Schott says, and they have been hiring CPAs and attorneys who bring a different set of skills to complement their investment advisory services. These professionals can use their expertise in areas such as estate planning, business evaluation, and tax planning to provide that more well-rounded, comprehensive solution to clients seeking financial planning.

Other banks are also looking to their trust departments for guidance, Schott says. These businesses--well-established for decades at many banks--have long operated in a more relationship-based manner, and several banks are trying to emulate this method for their retail advisory efforts, he says.

Some banks are also working in partnership with independent advisors in hopes of reaching a broader audience. Jacksonville, Florida-based EverBank, for instance, recently created the EverBank Advisor Services Group, which seeks to provide a full-service wealth management solution by partnering with independent financial advisors (see "Want a Partner? sidebar on the following page).

While it's likely that these kinds of partnerships will continue to evolve, some independent advisors still doubt their effectiveness. The perspectives of independent advisors and those of a bank as to what constitutes wealth management are very different, says Tom Batterman, president of Vigil Trust & Financial Advocacy in Wausau, Wisconsin. That, he says, is not going to change. "For the two philosophies to coexist, there needs to be a clear plan upfront. Independent advisors need to think very carefully about whether they want to be part of a larger bank culture," he says.

Most independent advisors don't think there can ever be a meeting ground between their competitor banks and themselves. Hemant "HP" Singh, chairman of the New York-based firm Private Wealth Management, says that banks will always be guided by an entirely different set of motivations and a different business philosophy than independent advisory firms, even if they partner with them or try to seek a more holistic approach to the retail advisory business. Banks are more inclined to provide investment advice and get customers to buy investment products for the sake of a sale, he says, because, simply put, that is the nature of their business. Even if they partner with independent advisors or hire other professionals such as CPAs or attorneys, they remain focused on company profits and not on fostering the enduring relationships that will sustain a long-term customer base.

For banks and insurance companies, Singh says, the retail advisory and investment management business continues to be one business area among so many others whose overall profitability determines its year-to-year survival, a dynamic that he says is not going to change. For this reason, Singh says, advisors in banks do not have the same level of dedication to their clients as independent advisors. It also accounts for why both parties will always work in different playing fields, and why there will always be a need for independent financial advisors.

"Large banks give customers a list of choices--funds, annuities, et cetera--and they get customers to run down the list and choose," Singh says. "As independents, we have nothing to offer but ourselves and our ability to create a solution that fits a client's needs. Once clients understand this, they can come up with their own answers. They become independent thinkers, they understand what they are looking for, and they rely on us for our services and not for any choices we might market to them."

Most independent advisory firms believe that they will continue to hold an edge in this area even as banks expand because of how they view financial planning. For independent firms, financial planning is all-encompassing, Singh says: It is about a client's entire life and the lives of those the client is responsible for, and while investment products are a large part of the overall picture, they do not provide the entire answer.

When Bigger Is Better

In the retail advisory space at least, this kind of global perspective will never replace the sale of a product and the profit motive that guides banks, independent advisors say, but Devika Kamboh, a financial planner at MetLife in New York, feels differently, and believes that even within larger institutions, those offering financial advisory services think in the same way as their independent counterparts. The belief that such large-scale players as insurance companies are guided by profit alone is too simple, too generalized, and a basically unfair assessment, she says.

"Because we are a big firm, people automatically assume that we push products on people, that we don't have a personal interest in people," Kamboh says. "But like independent advisors, our intent is also to educate and inform clients. It is not about us, it is about the client."

A company's size and business line has nothing to do with the kind of advice a financial planner working for it offers, Kamboh says. On the contrary, she argues, a large company like MetLife can actually be more personal in that it can offer more customized solutions than a smaller player by virtue of having access to a range of different product lines and investment offerings, MetLife's and others. Companies like MetLife also have different specialists for every area of financial planning, Kamboh says, all of whom can help to meet a client's every need.

"A bigger company with diversified interests is actually to a person's advantage because we have a larger range of products and a team of specialists to execute [the financial plan]," she says. "We have a deep level of commitment to our customers. We offer our clients comparisons of products and services, we give them a full analysis in helping them understand what it is that they need. We tell them about all the products we have access to, we do not lock them into MetLife products."

Advice, Not Products

But an investment product is not always what a client needs, and many still feel that despite the strides they are making to become more personal, insurance companies and banks do not have a handle on the pure advisory business, and that this is the one niche area in which independent financial firms have an edge. In light of this, says Michelle Goldstein, founder of Goldstein Financial Future in Dallas, independent firms ought to place greater emphasis on their advisory services going forward.

"Financial planning is more than just finding products because not every financial planning issue needs a product as an answer," she says. "Sometimes, it is just about advice, and this is where the independent firms have a competitive edge."

In today's marketplace, the average traditional bank is still not very good about taking a holistic look at the needs of its clients, O'Hanlon concedes. However, "if properly equipped, there is no one more appropriate to deliver the entire financial offering than the trusted financial advisor," he says.

All in all, MetLife's Kamboh says, the onus of retail advisory today is shifting more toward the client. With a host of players in this business space and an overall consciousness of the importance of the holistic approach from all parties involved, it is up to clients to conduct their due diligence on the financial advisors they choose, whether they are independents or working for a bank or an insurance company. Clients need to be well informed on the educational and professional qualifications of advisors, as well as be able to get a good sense of the advisor's mindset and business bent. This, Kamboh says, can go a long way toward ensuring that clients' needs are met, both in terms of wealth management and long-term relationship building.

Savita Iyer is a freelance business journalist who specializes in banking and corporate finance. She can be reached at siyerwriter@yahoo.com.

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