Serving customer needs is at the foundation of all community financial institutions. But you are not alone on this mission, as investment companies are continuing to expand their offerings to serve the needs of your customers as well. We recently heard the latest news in this regard with Edward Jones applying for an industrial bank charter in Utah so that they can open their own deposit program, issue CDs and do more securities-based lending through their network of 20,000 advisors across the country. This is in addition to their current agreement with U.S. Bank to start offering checking accounts and credit cards later this year.
In a world where “busy” is the new 4-letter word, our community members are looking for ways to simplify. Large investment companies are marketing financial account consolidation as a way to make life easier on the customer with the intent of trying to capture a higher share-of-wallet for themselves. A study done by Catchlight.ai showed that share of wallet increased from 37% in 2023 to 39% in 2024 among investment companies, while financial institutions capture on average 10-20%. Rivel Benchmark research indicates only 3% of banking institutions capture over 80% of their own retail customers’ share of wallet.
The best offense is a good defense
Now is the time to go on the defensive to increase share-of-wallet with your customers and prevent deposit loss to outside investment firms. Price Waterhouse Cooper research indicates you can generate over a 70% return on initiatives targeting existing customers. One of the best avenues to go deeper with your customers is by offering a competitive wealth management program.
For too long community financial institutions have gotten a bad reputation when it comes to the financial advice they are giving around investments. Many have only offered annuities and mutual funds and have found themselves out-of-date and unable to compete with the larger investment firms.
The first practical step an institution can take is to evaluate their current program. Would you, as a bank president or other C-suite member, invest with your financial advisor? Do your board members invest with your financial advisor? If the answer is no, then most likely something needs to change.
And dig deep into the fees that you, and your customers, are being charged. Many broker-dealers only allow their advisors to use more expensive share classes of mutual funds, lining their pockets at the expense of your customer. Another common practice is for broker-dealers to use a cash sweep in customer investment accounts that pays a minimal interest rate, such as 0.25%, and then they keep the remaining for themselves.
For example, Midwestern Securities uses a money market fund for our cash sweep account that is currently paying 4% to the customer. Other broker-dealers may invest the cash in a higher-yielding money market to also gain 4%, but then only pay 0.25% to the customer, keeping the rest.
Partnering with a broker-dealer, like Midwestern Securities, that can help you move the needle with your program away from an expense-heavy, commission-based program to a more fee-transparent, advice-driven culture is the first step to evolving a wealth management program to be more competitive. A strong broker-dealer can help you transition to a more fee-based program and develop a solid strategy to identify at-risk deposit customers and offer financial planning services that your customers want.
Your next best play
One strategy is to use your data to identify ACH transactions that are going to an outside investment company. Heather Steger from Oculus, makers of data management tool BNControl, demonstrated how she was able to quickly pull a bank report showing all the outgoing ACH transactions over a defined period of time that were going to Edward Jones. It was an astonishing amount for the bank she was looking at.
Another way to compete with outside investment firms is to offer retirement plan services through your financial advisors. This is a great way to connect with small-business owners, as well as all their employees. Midwestern Securities partners with larger retirement plan companies to offer multiple solutions for small-business owners including solo 401k, SIMPLE IRA, SEP IRA, 401k or a specially designed cash balance plan.
An important part of offering retirement plans is to partner with a broker-dealer, like Midwestern Securities, where the financial advisors are considered fiduciary advisors to the plan participants and are able to reach out to them and do individual financial planning outside of just overall retirement plan management. This requires specific training and compliance oversight, which not all broker-dealers support.
The famous Roman poet, Ovid, said, “A horse never runs so fast as when he has other horses to catch up and outpace.” Now is the time for you to be running full speed in the direction your customers need you to run to grow your business and defend your deposit base.
Contact us today to learn how your financial institution can beef up your defense and protect your deposits.
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