In a recent article from Kehrer Bielan Research and Consulting, The Cautionary Tale of the Bank-Owned Broker-Dealer, they pointed out that banks and credit unions that work with third-party broker-dealers continue to outpace their counterparts with bank-owned broker-dealers. “Gross investment services revenue in institutions affiliated with third-party BDs increased 24.1%, compared to 14.8% in the bank-owned BDs, marking the third consecutive year that revenue growth in the third-party BDs has outpaced growth in the bank-owned BDs.”

KBRC cautionary tale chart

There are numerous reasons for this disparity, but one stands out to me: financial advisor headcount. Kehrer Bielan’s research suggests that institutions that work with third-party broker-dealers have been relatively more successful at making net additions to advisor headcount in five of the past seven years. “Those additions appear to be paying off, fueling faster revenue and asset growth, and giving the third-party partners a meaningful advantage over the Bank BDs.”

I think that the key takeaway here is that regardless of the program type (bank-owned or third-party), adding financial advisors is a key strategy for growth – you can’t solely rely on improving the productivity of your current advisor team. You might be concerned that adding advisors will dilute production. Yet, Kehrer Bielan’s Annual Industry Checkup concluded that “financial institutions need to more than double advisor headcount to optimize their penetration of the opportunity.” Additionally, their research found that broader advisor coverage increases revenue exponentially. In other words, increasing advisor headcount fuels growth. Perhaps a better way to look at this is that adding advisors and trimming client books won’t diminish output; rather, they will provide the ability to serve your clients more thoroughly and increase client satisfaction.

A study by Qualtrics posed the question, “Why have you switched your financial advisor in the past 10 years?” The study found that 10% of clients said they switched financial advisors because of poor customer service, and another 10% said it was due to a lack of personalized attention. The only area that outranked these two was high fees being the top cause of client attrition at 14%. However, when combined, poor customer service and lack of personalized attention indeed reveal the importance of developing and maintaining deep client relationships, which are essential to overall client satisfaction.

Firms considering or intending to add headcount ought to focus on reducing manual processes that don’t scale well, such as commission accounting. This is especially true if your firm relies heavily upon spreadsheets to track and calculate commissions. Over time as your business grows, these manual processes will become increasingly complex, error-prone, and simply time-consuming. Converting from a spreadsheet-based commission accounting process to an automated compensation platform like Terrapin’s will enable your firm to grow scalably, increase profits, and reduce risk. To learn more, click here.

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Portions of this article include excerpts originally published by Kehrer Bielan Research and Consulting. Kehrer Bielan Research & Consulting provides the financial advice industry with insights based on a melding of research and experience in managing the delivery of investment, insurance, and wealth management services. The firm’s principals—Kenneth Kehrer and Peter Bielan—have participated in the financial advice industry as executives, researchers, analysts, and spokespersons for over 30 years. Together they bring a unique, unbiased resource and perspective through their original research, actionable advice, and keen understanding of where the industry has been and where it needs to go.

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