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.
What Your Peers Are Reading
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.