Bank Financial Advisor Cross-Selling Is Floundering

Since the great recession of 2008, banks have touted their affiliated broker-dealers as a growing source of revenue during tough times. But a new report from Aite Group calls into question whether banks are fully engaged in cross-selling opportunities between their financial advisors and banking customers—including retailers, small businesses, and commercial units.

The report, which analyzes an online survey of 75 bank financial advisors, found that many successful advisors do not leverage internal partner referrals.

When questioned on how much revenue they receive from bank referral clients, 33% of advisors reported receiving no revenue from referrals. One-third reported receiving less than 25% of their previous 12 months total revenue from referrals, and another third reported receiving more than 25% of their revenue from referral clients.

The primary factor influencing bank cross-selling seems to be the bank’s compensation model. “Bank and brokerage leaders need to agree on the success metrics of the ideal bank financial advisor,” according to Sophie Schmitt, the report’s author and senior analyst at Aite Group. “Bank advisors whose business is predominantly fee-based are not always the best partners, and the best cross-sellers and partners are not always the most successful financial advisors. Leaders must also do a better job of demonstrating to successful advisors how working with internal partners can bring more revenue.”

For advisors who saw significant revenue from bank referral clients, 70% of referral clients are retail banking clients—who are often high need, low revenue clients. A much smaller 7% came from commercial and small business banking units and 6% came from private banking units.

Advisors who leveraged bank referrals tended to generate revenue from periodic assets under management fees. In contrast, advisors who did not leverage bank referrals and cross-selling in their business tended to do most of their business through commission business, like annuities sales and 401(k) plans.

It’s not too surprising that bank advisors aren’t keen on cross-selling since only half of the surveyed financial advisors receive financial incentives for referring bank products to their clients. And bank employees aren’t usually compensated for referrals to the financial advisors.

Banks and their associated financial advisors would do well to find a mutually agreeable ground for referral business. On both sides of the equation, referral incentives would go a long way toward getting the cross-business flowing.

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See also The Law Professor's blog at AdvisorFYI.

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