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Banks See Wealth Management New Cash Cow

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Expect banks to become bigger players in the wealth management space. According to a new study by Fidelity, over half of bank executives expect to grow their revenue from wealth management practices by 25 percent in the next five years.

After dealing with the financial meltdown and the effects of regulatory change, banks are now looking for new revenue opportunities, with a particular interest in fee-based business, according to the Fidelity Bank Wealth Management Study.

“The last five years elevated the position of wealth management in banks—it’s become the growth engine,” says Mike Norton, head of the banking segment for Fidelity Institutional.

In a survey of more than 140 executives at regional, national and community banks, Fidelity found wealth management was a key growth target, with 42 percent saying they felt their company increased focus on wealth management over the past five years. Moreover, a third of the banks’ wealth management units contributed, on average, 28 percent to the institution’s overall revenue.  And that revenue contribution has increased 40 percent at these banks over the past two years.

And Norton says banks are in a good position to really build a reoccurring revenue base through wealth management. According to almost half of the bank executives interviewed, clients feel comfortable in the bank setting, and 44 percent felt banks offered more personalized services than larger brokerage houses.

“As banks move forward in wealth management space, their ability to transition over that relationship and transition that trust that has been built up over the years will broaden their ability to increase wallet share,” Norton says.

Going forward, banks are likely to continue to grow their advisor base, as well as look at creating a new RIA, acquiring an existing RIA or partnering with RIAs, Norton says.  In fact, 83 percent of the banks with top producing wealth management units already use RIAs as part of the delivery model, while 88 percent that made an acquisition did so to gain access to clients and markets served by the RIA.

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