Third-party broker-dealers that support investment services in banks and credit unions gained momentum in 2013 as they picked up both new advisors and new business.

The third-party marketers increased advisor headcount 1.5% to 6,160 and boosted the number of financial institutions they served to 2,640, a 2.6% increase, according to the Kehrer Saltzman Annual TPM Report released Monday.

Third-party broker-dealers working with banks and credit unions grew investment services revenue by 14% in 2013, largely a result of financial institutions outsourcing their broker-dealer operations.  In 2013, four banks outsourced their brokerage units, leaving an estimated 40 banks that maintain their own broker-dealer.

Despite the uptick, TPM firms have plenty of room left to grow, according to Kehrer Saltzman. They could increase their annual revenue by $2.4 billion to $4.9 billion by pitching the more than 5,000 banks that do not yet offer investments.  Among credit unions, the opportunity is especially large, as only 13% currently offer investment services and many of those do not have nearly enough financial advisors, according Jon Gabriel, a senior associate with Kehrer Saltzman who directs the firm’s TPM due diligence practice.

An even bigger opportunity exists with the banks that the TPM firms already work with. “If the investment services penetration in those banks could be brought up to the top quartile performance, TPMs would generate another $7.5 billion a year in revenue, most of it shared with their partner banks,” Gabriel said.

The report was based on the firm’s annual survey of 11 of the largest third-party broker dealers, which collectively account for 90% of all financial institutions that outsource their broker-dealer services.

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