How to Upgrade Your Community Bank's Toolbox with Wealth Management

Once considered a service exclusive to large banks, wealth management has become a growing source of non-interest income for community banks.

Wealth management presents more than just an additional source of income. It’s an opportunity to extend a bank’s established presence by building on the trusted foundation that they’ve nurtured over the years of serving their communities.

A recent American Banker survey results suggest that 25% of community banks intend to offer wealth management services within the next two years.

In a related study of senior bank executives conducted by Fidelity Investments, 55% said they expect the revenue contribution from their wealth management practice to grow 25% or more over the next five years.

If ever there was a time to consider adding wealth management to your banking services, it is now. The biggest question mark may be figuring out how to get started.

There are two primary options for establishing a wealth management department. First is to build it in house. The second is to partner or acquire the capabilities from outside the bank structure.

Building a wealth management department organically can be enticing, but it presents significant challenges if experience does not already exist in house. It’s imperative that the personnel are knowledgeable and experienced in trust, estate and investment planning. The investment advisor also needs to be well versed on the intricacies of trading and investing in the global marketplace. And unless the bank is endowed with a team of software engineers to handle the investment platform, outsourcing broker-dealer support to a third-party provider is the safest option for managing the support side of the offering.

Building referral partnerships with key providers or acquiring a wealth management practice also can be a solid growth strategy. To ensure the expected upside is realized, there are a few key considerations to evaluate when partnering with or acquiring an existing wealth advisory practice.

Partnerships:

• Enables the bank to refer customers to their wealth advisory partner without incurring the expense or liability of locating that offering in house
• The set up reduces the need for the bank to train new staff and acquire new technologies

Acquisitions:

• An established book of business can mean instant revenues and negate the need to advertise too extensively about the new service
• Due diligence is critical to making sure the wealth management firm’s standards and practices, and balance sheet, are orderly
• Wealth management has different regulatory requirements than banks, so additional training on regulatory compliance may be necessary

Not surprisingly, the partnership strategy can be the more immediate and direct of the options. But to optimize this strategy, the bank must ensure that any advisory practice to which they’re referring clients shares the same culture and values, so the customer experience is seamless.

Adding a wealth advisory practice, whether organically or through acquisition or partnership, may seem like a daunting or expensive option for a community bank. But we’re already seeing that it can pay dividends. And with more and more community banks taking this step, it looks like the move is becoming less a competitive advantage and more of a core competency.

Are you meeting the wealth management needs of your community? HORNE can help you identify the best path to firming up the future – for you and your clients.