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Banks To Target Wealth Management For Fee Income



A majority of bank executives expect revenues from their wealth management practices to grow 25 percent or more in the next five years as banks look to deepen their penetration into sources of fee income, according to a new study.

The new findings are included in the inaugural Fidelity Bank Wealth Management Study, for which more than 140 senior bank executives were interviewed. The study was conducted by Fidelity Institutional, a division of Fidelity Investments.

Key traits among “pacesetter” banks identified in the survey include a commitment to focus on wealth management from leadership, tight integration with other bank lines of business, comprehensive and holistic wealth management services, using the network of registered investment advisors (RIAs) and outsourcing noncore banking activities.

“While some may assume that pacesetters were the largest banks or clustered in certain regions, our study found that what really set these firms apart was how they run their wealth management practices,” said Mike Norton, head of the banking segment for Fidelity Institutional.

Banks love fee income. Unlike spread income, which depends on lending money at a higher rate than at which it is borrowed, fee income isn’t interest-rate sensitive.

Banks, which are heavily regulated, have a ready-made advantage over many of their financial services competitors. Banks hold the payroll deposit relationship, and billions of dollars flow through banks by virtue of that connection.

Banks also offer the safest investments in the form of Federal Deposit Insurance Corp.-insured savings accounts and certificates of deposit. Banking institutions provide a “safe harbor” from which investors can start to build future wealth. Insurance and annuity products are sold through the bank channel.

With baby boomers holding billions of dollars in CDs, it’s an opportunity for wealth managers to convert the investment into an annuity, according to financial advisors. Fees associated with the service end up contributing to the bank’s bottom line.

Fixed annuity bank and credit union sales hit $3.2 billion in the second quarter last year, up from $2.7 billion in the first quarter, according to the Bank Insurance & Securities Research Associates (BISRA), the research arm of the Bank Insurance and Securities Association.

Indexed annuity bank and credit union sales reached $1.06 billion in the second quarter last year, up from $774 million in the first quarter, BISRA research also showed.

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The Fidelity survey also found challenges facing banks looking to grow their fee income from wealth management. Among the challenges is the streamlining of platforms and the recruiting and retaining of advisors with wealth management expertise, the survey also found.

is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

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