Banks and credit unions have an advisor retention problem, and it’s costing them big time, according to a new study.
In the study, sponsored by LPL Financial, research conducted by the Kehrer Bielan consulting group finds that most banks, credit unions and other financial institutions have far fewer advisors than they need to bring in investor assets. Plus, institutions in this advisor channel are “falling further and further behind.”
However, it’s retention that appears even more vital, according to the authors of the study: “Many firms report losing an advisor for every one they recruit,” write authors Kenneth and Tim Kehrer.
Departing reps take with them potential revenue, which means banks and credit unions lose from $9 million to $12 million per lost advisor over time, the consultants explain.
“Over a 20-year career, an average advisor can be expected to produce $12 million in revenue. So when an advisor with five years of tenure — the average tenure of regretted attrition — joins another firm, the advisor is taking $10.8 million in future production away from the previous firm. Regretted attrition of an advisor with eight years of tenure — the average in bank broker/dealers — costs the firm $9.2 million in future revenue,” the Kehrers stated.
Converting this revenue stream into a present value, the future lost production of the typical advisor costs a bank or credit union $8.1 million today. “Doesn’t it make sense to spend some of that money to keep the advisors, before it walks out the door with them?” the report authors asked.
And how bad is attrition in the institutional advisor channel?
“The average firm in our survey [of 36 banks and credit unions] lost 11.2% of its advisors during the previous year, but the average advisor attrition rate” — the number of advisors who left the 36 firms during the year divided by the number of advisors in place at the start of the year in those firms — was 20.4%.
Banks with over 100 advisors lost more than 25% of their advisors in 2015 vs. less than 10% at smaller institutions, the study finds.
Furthermore, bank-owned broker-dealers may be experiencing even higher rates of advisor attrition. This is because their advisors are “particularly appealing to outside firms looking for new recruits,” according to the Kehrers.
“Compared to advisors in smaller firms, those in bank-owned broker-dealers have average annual production that is 59% higher, with substantially larger books of business that are weighted more heavily towards advisory business,” the Kehrers explained.