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Year Of The Bull: Despite a lurking bear market, this could be the year that bank brokerage finally comes into its own.(Company overview)

Bank Investment Consultant

| January 01, 2008 | Stock, Howard J. | COPYRIGHT 2008 SourceMedia, Inc. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan.  All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)Copyright

While growth in the year ahead may not break any records, the bank advisory business has become a bright spot against the dark cloud of the subprime mortgage crisis. At the same time, a general tightening of margins on deposits and a squeeze on interest rates is hurting other profit centers within banks. "The greatest challenge for banks right now is to offset that squeeze," says Grubb. "And brokerage is a great source."

In 2008, bank advisory operations should continue to shine, and bank executives watching the bottom line are more likely to notice. Could this be the year that bank management finally embraces brokerage on a par with deposits and loans? Program managers are certainly optimistic. Almost all (94%) of their businesses turned a profit in 2006, (in 2002 only 71% did), and 98% expected to meet or exceed 2006's profits in 2007, according to the 2007 Study of Bank Brokerage and Retail Investment Services, a biannual industry benchmark report, based this year on survey responses by 286 banks of all sizes. The study was released at the end of last year by American Brokerage Consultants, a consulting firm based in St. Petersburg, Fla.

Fortunately, some banks have started to view themselves as portfolios of complimentary businesses, rather than deposit-and-loan firms that offer brokerage strictly as a defense against wirehouse competition. As a result, brokerage advisory programs continue to find synergies with other bank units, such as trust and even checking. Bank of the West now offers an interest-bearing, FDIC-insured, checking account that is attached to brokerage. "Working with the retail bank like that helps deepen our client relationships," Grubb says.

Bank advisory units have perhaps their greatest opportunity to gain relevance by teaming up with the commercial side, says Alistair Jessiman, managing director at Novantas, a consulting firm in New York City. "Where commercial banking is 30% of revenue and wealth management is 5%, that tells a story," he says. "Everyone a bank lends money to on the commercial side should be a wealth client. Most banks are far from that target, but linking wealth management to commercial banking is their best option." The business banking side also opens up opportunities to sell insurance, such as disability and income-protection insurance, as well as to offer succession planning.

There is also the opportunity to do more business with commercial banking clients' employees, Grubb says. "It's an opportunity that's gone virtually untapped that we're now going after." Will banks seize this opportunity? "It should already be happening, but it's not," Jessiman says. "I told one client that to make the wealth business work he should take his next acquisition and not do it and put the money into building this business instead."

RETIREMENT BOOM

The other huge opportunity that smart banks and their brokerage programs will seize on this year is the retirement income planning boom. According to the Federal Reserve/Cerulli Survey of Consumer Finance, the current $11 trillion in retirement assets of people age 60 and over, will be $16.1 trillion by 2009. "The elevator story for bank brokerage is retirement assets because there is so much on the table," says Grubb. "And that figure only takes into account three years of retired boomers, so this opportunity will absolutely explode." It's no wonder then that three-fourths of program managers see retirement planning as the one advisory service with the greatest future growth potential (see bottom chart on page 18), according to the American Brokerage Consultants report.

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