TPM revenue off, but fee biz continues to increase
Banks and credit unions that use one of the industry's TPMs saw their collective wealth management revenue flatline last year at about $1.9 billion. This stopped a years-long trend that saw a 50% increase industrywide since the beginning of the decade, according to the current Kehrer Bielan Annual TPM Report that came out last month.
While the lack of top-line revenue growth is no doubt disappointing to banks and TPMS, the numbers reveal one piece of very good news: Fee-based business was up a significant 17%, year over year. Moreover, fee business has almost tripled since the beginning of the decade to $367 million, and has nearly doubled its percentage of overall revenue to 19%. Meanwhile, revenue from the sales of investment products fell 2.4% to $1.4 billion from the previous year, with mutual funds and variable annuities suffering the greatest declines.
This is a welcome development given the new fiduciary rule, which severely restricts advisers' ability to charge commissions for retirement-related advice.
On that front, the three TPMs with the highest ratios of fee business to overall revenue are Raymond James (37%), Securities America (24%) and LPL (23%). Securities America's high percentage is against a backdrop of a much smaller revenue figure. At $22 million, it’s the smallest TPM in the study.
TPM-affiliated banks and credit unions had yet another reason to be encouraged. They were able to post a 2.8% uptick in their adviser rolls, despite steep competition from wirehouses that offer large recruiting bonuses. The big banks that own their broker-dealer, meanwhile, saw a slight .5% drop in their adviser headcount.
Financial institutions that work with TPMs were also better able to retain their advisers than bank-owned broker-dealers. "Adviser attrition in TPMs was less than half the attrition experienced in bank BDs," the authors Ken Kehrer and Tim Kehrer write in the report.
The report ranked TPMs on several fronts. Raymond James led the charge in adviser productivity. The average Raymond James adviser produced $387,755 in investment services revenue, beating Cetera Investment Services, its closest rival, by more than $56,000.
Raymond James attributed the high productivity to its strategy of promoting quality over quantity (see separate profile on Raymond James). The firm said it recruits top talent, primarily from the wirehouses, and offers training and coaching opportunities to help advisers boost their efficiency.
LPL Financial dominated market share, hogging 32.3% of revenue, 31.9% of advisers, and 27% of financial institutions. As befitting an industry size leader, company executives say they are looking for growth on all fronts: growing existing programs, adding new banks to their client list and even growing its custody and execution capabilities (see separate profile on LPL).
Company executives say that most banks don't have enough advisers to fully reach their revenue potential. Indeed, it's an ongoing struggle to convince banks of the growth opportunities, according to LPL.
For its part, Cetera was second biggest in revenue and headcount after LPL; and second highest in production-per-adviser after Raymond James. The firm renamed itself Aretec after its parent company emerged from bankruptcy last month, which removed a dark cloud from its horizon. Company officials say they are ready to meet the fiduciary rule head-on. The company has created new tools to help its advisers identify which parts of their businesses will be affected by the fiduciary rule, and to map out a plan to become compliant (see separate profile on Cetera).
Organic growth is a top priority for Cetera this year. The company plans to invest in its existing programs and help advisers increase their wallet share.
Infinex Financial Group pummeled the competition in revenue growth. The firm's revenue grew 21.6%, most of it due to its acquisition of Essex National Securities.
The 2015/2016 Kehrer Bielan report surveyed the nation's eleven largest TPMs, which collectively work with 2,777 banks and credit unions. The survey has been conducted annually since 2006.