The banking industry excitedly moved into financial services in the early/mid 90’s when Congress pulled down the Glass-Steagall Act and removed the barrier that had kept the banking industry out of insurance and investments for decades.
Now it seems an industry that loves to binge on transactions is scaling back and looking to expand into a much slower paced segment of the personal finance advice market.
Would you Like Managed Money with that?
Recent research from Fidelity shows us many large banks (and even many small ones) are ramping up their focus on managed money services in a big big way. What does that mean?
Essentially, your bank would now like to manage your investment portfolio and have you pay them an asset based fee for the priviledge.
It seems as though the gold plated doors leading into the wealth management/private client section of the building proved to most major banks that there is money to be made in keeping an eye on someone’s money and they’d like to expand their reach down to the more common man (and women).
In fact, big names like Bank of America, JP Morgan Chase, et. al. are so focused on this new expansion as an industry movement that they have convinced themselves that their biggest threats regarding competition are each other.
That’s right, your friends at Citi are more worried about the wealth management services offered by US Bank than they are at the real wealth management shops who have been doing this (and excelling at it) for years.
But why is such a shift in everyday business operations at your local bank such a big head scratcher?
The Impulse Buy Aisle of Financial Products
I’m not trying to demean banking (not too much at least), but the entire industry’s approach to selling financial products is much more Dollar General in nature than it is being lead through the buying process by a trained professional who can deliver quality advice and service.
Banking has largely focused on quick transactional business and not lengthy question riddled products and/or services like managed money.
And truthfully it doesn’t need to adopt a more hands on approach to providing financial products. Just like Lori Grenier’s hawking cheap crap on QVC. They too make a lot of money selling products we could live without, but choose not to.
So it’s weird that an industry that can make a lot of money on this business model would want to make a 180 degree turn and venture into a business vertical that requires so much more effort.
Protect the Baby
Or maybe profits aren’t the motivation. At least not in a direct sense. The likelihood that any bank will create a wealth management service that rivals the profitability of its lending unit is practically zero.
However, all banks know when it comes to this sacred cash cow, people have options. And they don’t need you or I talking to the guy or gal across the street about what he or she could do for us the next time we need to borrow money because we went across the street to talk to the wealth management department.
In other words, maybe—just maybe—the move into this market place (that is probably more annoying to banks than anything else) is a defensive measure to ensure that long time borrowers don’t start talking to the competition about their tangential offerings and learn that their loan rates are better, too.
Whatever their motivation, we can be pretty sure when we suggest that banks aren’t really interested in competing with most professional wealth management shops (they’ll get destroyed trying to compete there). Instead, they simply want to ensure that if Jim, the average guy stops in to make a deposit and asks about the bank investment advisory services, the teller doesn’t have to disappointment him by letting him know he’ll have to go elsewhere to look into those services.