Q&A: Self-Directed Investments Channel Core to Bank-Brokerage Integration

Guest Commentary by Scott Stathis, Managing Director and COO, BISRA (formerly Kehrer-LIMRA)

Bio: Scott G. Stathis has been in financial services since 1992. Scott joined forces with Dr. Kenneth Kehrer in 2008 and is currently the Managing Director and COO of Kehrer- LIMRA, a performance research and consulting organization focused on financial institutions. His early background in the industry includes new broker training, sales automation, and financial planning systems. His more recent experience includes 12 years running his own financial services technology consulting and research company, as well as being president of a financial planning software company.
Scott’s experience and insights have established him as a reliable source of information related to productivity in the financial services industry. He moderates ten industry roundtables each year, his articles are published regularly, and he is a frequent speaker at industry gatherings.

Q: As many banks offer investment services through an established financial professional network, how does the self-directed investment channel play a role in their long-term strategy?

A: According to our latest research, there is a 50/50 split between advisors who are open to a blended approach and those who believe the self-directed channel will cannibalize their business. In the long term, more banking institutions will realize that clients want access to their account information and trading capabilities in a multitude of ways – not just via phone or an advisor. The bank channel is now evolving toward a wealth management model by necessity, because of their competition in other channels, and will have to offer clients a blended solution in order to survive.

Looking at the bigger picture, there is an evolution toward a wealth management structure with blended teams and offerings and the advisors are realizing it, too. Firms are seeing that a self-directed channel can free them up to do more in the way of advisory business that has recurring revenue. The online channel also allows firms to service a wider range of customer types, offering an outlet that can support the needs of the growing mass affluent market with minimal required resources.  Advisors can really focus on the things that matter to the clients – relationships versus transactions.

Q: What is driving this trend now?

A: The trend has been evolving over the past five or six years. More recently, the bank brokerage firms are beginning to see a major shift in their target client demographic towards being very active online and requiring some type of advisory relationship. Many participants in the bank channel are still playing catch-up, trying to chase the bigger brokerage organizations and those companies that offer both options in a blended solution.

One advantage the banks do have is their existing vast client base, which they’ve amounted over the years. Their main goal right now is to ensure they maintain and grow their number of customers by updating their offerings. The interest-based income is not enough anymore, especially since it is being heavily regulated. Therefore, the banking industry is looking at getting more fee-based income. They realize they are not going to be able to keep the investment business as clients accumulate more and more wealth. If they don’t give clients a choice for how to manage their investments and how to access advice – they will struggle to remain competitive.

Q: What are some of the tools and services banks should be considering to differentiate themselves in the online channel?

A: It is less about having unique online offerings and more about being able to offer an integrated wealth management experience that brings together all of the relevant services. It is very important to make sure that services such as investment, private banking, trust, and loans, are seamlessly integrated in order to provide complete visibility into a client’s liquidity. The differentiation is going to come from the bank’s ability to integrate the full suite of services in a way that is seamless to the client and that offers a robust client experience.

The mobile movement is another big piece of the differentiation through technology. Historically, US banks have been slow to adopt mobile solutions, but they are increasingly getting into mobile banking. Our research shows that the percentage of clients accessing account information via tablets and smartphones is steadily growing and banks need to have a mobile presence as part of their online strategy or be forced to play catch-up later.  Mobile is truly the next frontier in customer services and being able to offer tools that allow investors to trade, monitor and move money between accounts and portfolios anywhere, anytime will be key to bank-brokerage success.

Q: Why is seamless integration so important?

A: A client has relationships with a variety of departments within the bank. They might have a relationship with a trust officer. They might have a relationship with a private banker. They might have a relationship with an investment advisor. Right now, for the most part, each of those departments resides in their own silo for a variety of internal and organizational reasons. There is a general lack of appreciation for the value proposition that one department can offer a client compared to another.

There needs to be cross-departmental training in order to get one department to appreciate the other and develop trust in order to better service clients. However, this is impossible to achieve without the right technology platform provider. It is technology that is allowing clients to talk to different employees within an organization about their needs. The integration can’t be seamless if someone in one department has to rummage through a file for paper-based documents, taking anywhere from a few minutes to several days, and send it over to another person in a different department. Technology plays a major role here – even if it is less obvious to the client – as it is critical for the organization to be able to deliver on the promise of wealth management.

Q: Banks have offered multiple channels in the past – what are you seeing that is a new development?

A: Banks have traditionally functioned through siloed businesses, from retail banking and brokerage to wealth management and trust. They are starting to break down the walls with technology as a facilitator.

Q: And if the banks don’t adapt?

A: They will get stuck in the trap of relying on the interest income that is being regulated away. The margins are going to get squeezed and banks won’t have a choice but to evolve their model and technology can help do that, quickly.

Q: Why is the self-directed investment channel often overlooked?

A: Firms are still in denial. But as more organizations are studying their client implementation strategies and cost of delivery for each segment, they are realizing they don’t have a choice if they want to be efficient but to adopt the self-directed channel. If we want to deliver and really manage the cost of delivery for every segment, the online offering has to be part of the package. It isn’t even a choice anymore, it is a mandate.

To learn more about the self-directed investment channel’s impact on the weath management model, download a complimentary copy of Kehrer-LIMRA’s latest research report “The Value of the Self-Directed Investing Channel in the Bank Brokerage Industry

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