Banks only account for 24% of the ultra-high net worth market, compared to over 60% in the early 1990s. Or so claim consultants Celent in a new report entitled “Bank-Affiliated Brokerage Divisions.
In the report, Celent reviews what has disadvantaged banks. It also examines the initiatives banks have undertaken and the possible implications these will have on their businesses and the wealth management industry. The report profiles the strategies of four North American banks: BB&T, JPMorgan Chase, RBC Financial Group and a large bank that wished to remain anonymous.
Celent recons banks face an uphill battle in their effort to sell more brokerage products to their clients. Brokerage firms have continually been one step ahead of banks; they introduced innovative products, offered open architectures and hired capable and sales-oriented individuals long before most banks even contemplated doing so. Banks lost a significant amount of business to brokerage firms in the 1990s and have been struggling to stem the flow ever since.
US banks account for just 17 percent of mutual funds sales, one percent of life insurance sales and less than three percent of managed account sales. They only account for 24 percent of the ultra-high net worth market, compared with 60 percent for brokerage and, to a much lesser extent, mutual fund firms.
But there are grounds for optimism, says Celent. Banks appear to be having success luring advisors from brokerage firms and their recent sales of managed accounts-their market share increased from 3.8 percent to 5.8 percent from September 2002 to September 2003-indicates they are becoming competitive in what has become a critical market.
“By targeting the mass affluent-people who are more likely to use bank branches for their investment needs than others and who are typically still in the accumulation stage of their lives banks are making good use of their resources,” says Adam Josephson, research analyst in the securities and investments group at Celent and author of the report.