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PCBB Banc Investment Daily April 08, 2014
Banc Investment Daily
April 08, 2014

Taming The Competition From Within

For nearly a century, Nathan's Famous Inc. has hosted a hot dog-eating contest to see who can scarf down the most franks in a set period of time. Last year's male winner downed 69 hot dogs and buns in 10 minutes, setting a new world record and beating his own top score from the previous year. While one can certainly question the wisdom of eating what the New York Daily News calculates amounts to 20,010 calories (the equivalent of about 36 Big Macs!), there are many who bill the contest as an example of good, healthy competition.
In many cases, competition is indeed a good thing because it helps drive performance and encourage innovation. Without competition, life would certainly be a lot more boring. There'd be no Olympics, no World Series, no Super Bowl, no Dancing with the Stars, American Idol or Survivor. However, there's a time and a place for everything and competition can actually be a bad thing if it's not healthy. Take for instance, banks that cannibalize their business.
A recent survey by Fidelity Investments took a look at banks and their wealth management groups. The study found that more than 50% of banks surveyed expected the revenue contribution from their wealth management practices to grow 25% or more in the next 5Ys. That's certainly good news, particularly as bankers feel the ongoing revenue pinch of a prolonged low interest rate environment, but is it realistic?
The bad news is that many banks continue to view their investment arms as completely separate from their commercial banking. As a result, many banks compete internally for customer assets rather than taking an integrated, holistic approach to capture even more of the customer wallet. Indeed, when the same survey asked whether competition came from other parts of the banks for client assets, slightly more than 25% of those polled answered yes.
When it comes to having a successful wealth management arm, research suggests that integration with other bank lines of business is a critical component. Customers shouldn't feel they have a relationship with a commercial bank on one hand and a separate relationship with wealth management on the other. Instead, one client and one wallet should be the objective.
Certainly getting this done is not an overnight process, but it's an important goal to focus on. Even something as seemingly small as providing customers integrated access to their accounts is a step in the right direction. It will help your team capture more from each customer and level the field against competitors.
There are, of course, many other challenges bankers face in building a successful wealth management practice. Negative investor perceptions about bank operated wealth management programs remain a sticking point, as does breaking the long-running cultural divide that exists between traditional banking and bank investment advisory teams. Banks also need to make a greater effort to do away with multiple, separately functioning platforms and to stay up-to-date with the latest technology.
Despite these challenges, banks have ample opportunity to succeed in the wealth management business and you shouldn't be afraid to do so. Those that can integrate investment advisory into the overall banking business will be a step above your strongest competition. As with a hot dog in the summer time, wealth management ideally should mesh together with traditional banking as neatly as a hot dog fits in a bun.