While banks would like to provide more retail advice to customers, they
can't match the expertise and holistic approach of independents, at
least not yet
By Savita Iyer
Ken Robinson had a question about his mortgage. After meeting with his
banker, Robinson?an independent financial advisor and founder of
Cleveland-based Practical Financial Planning?decided to make a stop in
the bank lobby, pick up a brochure on the various investment products
his local bank had to offer, and ask to speak to his branch's investment
representative. Like other independent advisors, Robinson was curious to
see how the rep charged with offering financial advice and selling those
products for the bank would approach him. Were these people really as
aggressive as many of his peers had suggested they were? Did they try to
foist products on people without first finding out about them, without
engaging in a dialogue?
Sure enough: Within seconds of his leafing through the brochure, the rep
was onto Robinson, as he had expected.
"Without saying anything more than 'Good morning,' without knowing who I
was or what my objectives might be, the guy assumed I was early in my
career, looking to invest for my retirement, and was comfortable with a
great deal of risk. He said, 'I know what you need,'" Robinson reports.
"It's a prime example of the lack of knowledge and training these reps
have and of the approach used by banks" in the retail advisory business.
It is also an approach, Robinson says, that leaves many customers
unhappy and dissatisfied, feeling that they have received inadequate
attention and poor advice. Robinson's experience typifies the great
divide between independent financial advisors and large-scale players
such as banks and insurance companies, he says, and the seemingly
irreconcilable ways in which those big companies provide retail advice.
While banks have been attempting to muscle their way into the retail
advisory market, independent advisors say that they can never hope to
corner it, since the banks have neither the ability nor the desire to
foster the kinds of long-term client relationships that are integral to
providing good advice. The bottom line for an institution like a bank is
making a sale, independent advisors say, and while banks have the power
to market themselves better than independents and leverage existing
relationships with clients, they are more concerned with building
commissions for the rep and profits for the bank than engaging in a more
intimate and longer-term dialogue with clients about how to meet their
goals and aspirations.
Dave Moran, an advisor with Evensky, Brown & Katz in Coral Gables,
Florida, says that at a bank, "There is no relationship based on goals.
If someone wants [such] a relationship, a bank is not the place for
them."
A More Visible Presence
While Moran, Robinson and other independent advisors say they're
confident that they won't lose out to banks, there's no denying that
these big players are becoming more visible in the retail advisory
business. Over the past decade, these institutions have been entrenching
themselves deeper in this business, either through allocating increased
resources to their retail advisory efforts or setting up planning
divisions within banks, by partnering with financial advisors, or by
acquiring independent advisory firms.
According to the most recent National Survey of Bank Investment
Services, released on Aug. 31 by the American Bankers Association and
its affiliate, the ABA Securities Association, profits from retail
investment sales programs increased at more than 83% of banks in 2003.
Experts say that banks are only going to get more interested in this
business as the retail investor base continues to grow, so independent
financial advisors will need to take greater notice of them.
The competition from banks will become greater, some experts say, if
they start providing a more well-rounded, holistic approach to financial
advice. Indeed, big retail banks such as Wachovia, Wells Fargo, and
Citibank already have formidable retail advisory and wealth management
businesses and could become a real force to reckon with if they are able
to emulate the modus operandi of independent financial advisors.
Banks are aggressive in proposing their investment products and services
to clients, particularly to middle market customers, some say, which is
the largest growing segment of the country's investor base. Moreover,
most banks already have longstanding relationships with high-net-worth
individuals through their trust departments.
However, this does not mean, experts say, that banks have what it takes
to succeed in the retail advisory business.
According to Matt Schott, a senior analyst for retail brokerage and
investing at the Boston-based research firm TowerGroup, banks still lack
the holistic approach needed to become a sustained presence in the world
of retail advice. While banks have brand names, a strong market presence
in various business areas that allows them to leverage their client
base, and a solid technological advantage over smaller, independent
advisory firms, they still have not perfected the approach of looking at
a client's needs within the bigger picture and in the longer term.
"The independent advisors put themselves in the place of their clients
and provide advice that is in the best interest of the client and not
that of their firm," Schott says. "If banks want to be in this business
in the longer term, they will have to change the profile of the advisors
they hire. They are going to have to get away from the product-sale
mentality and go after people who have experience in providing
fee-based, holistic advice."
Finding the Right People
Some banks and insurance companies already understand that this is the
way to go, Schott says, and they have been hiring CPAs and attorneys who
bring a different set of skills to complement their investment advisory
services. These professionals can use their expertise in areas such as
estate planning, business evaluation, and tax planning to provide that
more well-rounded, comprehensive solution to clients seeking financial
planning.
Other banks are also looking to their trust departments for guidance,
Schott says. These businesses?well-established for decades at many
banks?have long operated in a more relationship-based manner, and
several banks are trying to emulate this method for their retail
advisory efforts, he says.
Some banks are also working in partnership with independent advisors in
hopes of reaching a broader audience. Jacksonville, Florida-based
EverBank, for instance, recently created the EverBank Advisor Services
Group, which seeks to provide a full-service wealth management solution
by partnering with independent financial advisors (see "Want a Partner?
sidebar on the following page).
While it's likely that these kinds of partnerships will continue to
evolve, some independent advisors still doubt their effectiveness. The
perspectives of independent advisors and those of a bank as to what
constitutes wealth management are very different, says Tom Batterman,
president of Vigil Trust & Financial Advocacy in Wausau, Wisconsin.
That, he says, is not going to change. "For the two philosophies to
coexist, there needs to be a clear plan upfront. Independent advisors
need to think very carefully about whether they want to be part of a
larger bank culture," he says.
Most independent advisors don't think there can ever be a meeting ground
between their competitor banks and themselves. Hemant "HP" Singh,
chairman of the New York-based firm Private Wealth Management, says that
banks will always be guided by an entirely different set of motivations
and a different business philosophy than independent advisory firms,
even if they partner with them or try to seek a more holistic approach
to the retail advisory business. Banks are more inclined to provide
investment advice and get customers to buy investment products for the
sake of a sale, he says, because, simply put, that is the nature of
their business. Even if they partner with independent advisors or hire
other professionals such as CPAs or attorneys, they remain focused on
company profits and not on fostering the enduring relationships that
will sustain a long-term customer base.
For banks and insurance companies, Singh says, the retail advisory and
investment management business continues to be one business area among
so many others whose overall profitability determines its year-to-year
survival, a dynamic that he says is not going to change. For this
reason, Singh says, advisors in banks do not have the same level of
dedication to their clients as independent advisors. It also accounts
for why both parties will always work in different playing fields, and
why there will always be a need for independent financial advisors.
"Large banks give customers a list of choices?funds, annuities, et
cetera?and they get customers to run down the list and choose," Singh
says. "As independents, we have nothing to offer but ourselves and our
ability to create a solution that fits a client's needs. Once clients
understand this, they can come up with their own answers. They become
independent thinkers, they understand what they are looking for, and
they rely on us for our services and not for any choices we might market
to them."
Most independent advisory firms believe that they will continue to hold
an edge in this area even as banks expand because of how they view
financial planning. For independent firms, financial planning is
all-encompassing, Singh says: It is about a client's entire life and the
lives of those the client is responsible for, and while investment
products are a large part of the overall picture, they do not provide
the entire answer.
When Bigger Is Better
In the retail advisory space at least, this kind of global perspective
will never replace the sale of a product and the profit motive that
guides banks, independent advisors say, but Devika Kamboh, a financial
planner at MetLife in New York, feels differently, and believes that
even within larger institutions, those offering financial advisory
services think in the same way as their independent counterparts. The
belief that such large-scale players as insurance companies are guided
by profit alone is too simple, too generalized, and a basically unfair
assessment, she says.
"Because we are a big firm, people automatically assume that we push
products on people, that we don't have a personal interest in people,"
Kamboh says. "But like independent advisors, our intent is also to
educate and inform clients. It is not about us, it is about the client."
A company's size and business line has nothing to do with the kind of
advice a financial planner working for it offers, Kamboh says. On the
contrary, she argues, a large company like MetLife can actually be more
personal in that it can offer more customized solutions than a smaller
player by virtue of having access to a range of different product lines
and investment offerings, MetLife's and others. Companies like MetLife
also have different specialists for every area of financial planning,
Kamboh says, all of whom can help to meet a client's every need.
"A bigger company with diversified interests is actually to a person's
advantage because we have a larger range of products and a team of
specialists to execute [the financial plan]," she says. "We have a deep
level of commitment to our customers. We offer our clients comparisons
of products and services, we give them a full analysis in helping them
understand what it is that they need. We tell them about all the
products we have access to, we do not lock them into MetLife products."
Advice, Not Products
But an investment product is not always what a client needs, and many
still feel that despite the strides they are making to become more
personal, insurance companies and banks do not have a handle on the pure
advisory business, and that this is the one niche area in which
independent financial firms have an edge. In light of this, says
Michelle Goldstein, founder of Goldstein Financial Future in Dallas,
independent firms ought to place greater emphasis on their advisory
services going forward.
"Financial planning is more than just finding products because not every
financial planning issue needs a product as an answer," she says.
"Sometimes, it is just about advice, and this is where the independent
firms have a competitive edge."
In today's marketplace, the average traditional bank is still not very
good about taking a holistic look at the needs of its clients, O'Hanlon
concedes. However, "if properly equipped, there is no one more
appropriate to deliver the entire financial offering than the trusted
financial advisor," he says.
All in all, MetLife's Kamboh says, the onus of retail advisory today is
shifting more toward the client. With a host of players in this business
space and an overall consciousness of the importance of the holistic
approach from all parties involved, it is up to clients to conduct their
due diligence on the financial advisors they choose, whether they are
independents or working for a bank or an insurance company. Clients need
to be well informed on the educational and professional qualifications
of advisors, as well as be able to get a good sense of the advisor's
mindset and business bent. This, Kamboh says, can go a long way toward
ensuring that clients' needs are met, both in terms of wealth management
and long-term relationship building.
Savita Iyer is a freelance business journalist who specializes in
banking and corporate finance.
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