The one-stop financial shop is still, after all this talk, the Promised Land. Management and even reps dream about cross selling, about grabbing more business from their current clients, about creating deeper relationships — the truly “sticky” kind — in which the advisor counsels his clients on everything from insurance to investments to mortgages. Got a financial need, we can solve it.
At least that's how it's supposed to go. But new research from Prince & Associates shows that despite the dream, and despite the formal cross-selling programs in place at many of the largest firms, the majority of brokers have been unable to get much traction from cross selling.
“There's a big perception gap with regards to cross selling,” says Russ Alan Prince, president of Prince & Associates, which specializes in market research and consulting. “Brokers aren't doing it effectively, yet they feel there's this big opportunity out there.”
The Prince survey, which is based on phone interviews of 931 financial advisors, showed that only 10.7 percent could be classified as effective cross-sellers (defined as an advisor who derives 15 percent or more of income from non-investment products, such as insurance, trust and credit products).
The greatest obstacle to wider effectiveness is not a lack of willingness on the part of advisors: 92.1 percent of those who do not cross sell well express the desire to do so. Nor is the problem regulatory; Gramm-Leach-Bliley effectively removed all barriers to financial cross selling four years ago, giving firms plenty of time to adapt.
Where's the Rub?
No, the biggest impediments to effective cross selling appear to be technological and organizational, Prince says. Almost 80 percent of the survey's respondents cite the poor quality of their “systems for identifying appropriate clients and positioning non-investment services and products.” Further, 68.2 percent say they do not have adequate access to the products and services they would cross sell.
“Advisors can't find the products — that's bad enough,” says Prince. “But even if they could, they don't know who to give them to.”
This speaks, of course, to a hot-button issue — customer relationship management (CRM). Brokerage companies have been working for years on CRM systems, whose primary purpose is to present information about individual customers' accounts in a way that helps advisors anticipate new product needs. For instance, a family that opens a 529 account for a newborn child might be a perfect candidate for a trust account, and a good CRM system would make such a suggestion to the broker.
Trouble is, brokers and consultants say, few CRM systems are currently delivering on their promise. The problems range from a lack of integration between front-end systems (the ones running on an advisor's desk) and back-office applications (the ones in the firm's data center) to poor database designs that create information “silos.”
“The result is disconnected CRM implementations, with no uniform view of the customer's holdings and interactions across the institutions business lines,” says Isabella Fonseca, an analyst at Celent, the Boston-based research company.
Yet, figures from two Celent reports suggest that CRM projects continue to get high-priority status within securities firms. In the midst of a historic curtailing of tech spending — 2003 marks the first time in modern history that securities firms cut tech spending in consecutive years — CRM spending is on the rise. CRM budgets at U.S. banks and securities firms have increased in each of the last two years and are expected to continue to do so through 2005 at a compound annual growth rate of 17 percent.
That's Nice, But…
Still, all the customer information in the world is not much good if advisors cannot use it to close sales. As such, the two-thirds of the survey's respondents yearning for better access to products and services are troublesome. But they prove a bit less so when the statistics are refined a bit further.
According to Prince, the product-access issue is a much greater problem for independent advisors than for those employed by large firms. This stands to reason, of course, since the largest firms increasingly have formalized programs to encourage cross selling, Total Merrill being the perhaps the highest-profile example. “If you work at a major brokerage house, you can get every product you want or need,” says Prince. Indeed, Jim Wallace, senior vice president of corporate and executive wealth management in Merrill's Atlanta office, says having access to a “full quiver” of products and services lets Merrill reps focus on the most important of cross-selling tasks: landing attractive clients. He acknowledged that some of those products are not very profitable, but, like Wal-Mart, Merrill stocks them “just to bring customers in the door.”
Further, lower-producing brokers (income below $250,000) were almost twice as likely as high-producing brokers (income above $250,000) to cite a problem with product access. Assuming the high-producing group is likely to be more experienced, these figures speak to the importance of formalized training for the newer brokers — particularly because this group's compensation levels make it all the more likely to be receptive to cross selling.
In the end, though, any discussion of cross selling's prospective success or failure boils down to how much of a market exists for it. The programs of Merrill, Schwab and Citigroup obviously presuppose customer interest in the concept. But a recent report from Forrester Research, “Conquering the Cross Sell Crisis” by analyst Ron Shevlin, casts serious doubt on that proposition. The report's most striking finding is that only 4 percent of the surveyed consumers had “multiple, different type of products from a single, preferred financial provider.” Further, only 20 percent of consumers were interested in such consolidation. (The reasons behind the reticence varied — about a third of respondents did not like tying their personal fate to that of a single company, another third cited security concerns and the rest said their financial life was simple enough already. Indeed, one-stop-shop naysayers tended to be committed to the multiple-provider life: Only 14 percent of the consumers surveyed said they would consolidate their accounts even if offered better interest rates.)
The good news is that 20 percent figure applied to U.S. census figures yields about 20 million households. Assuming the brokerage industry could accurately identify and target these 20 million, it could generate about 30 prospects for each of 600,000 or so registered reps (of course, only a third of that number is believed to be actually a practicing rep.)
The numbers almost make you understand what all the fuss is about.