Slideshow HI-FI: 5 Reasons Community Banks Opt Out of Wealth Management

  • July 02 2013, 1:30pm EDT
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HI-FI: 5 Reasons Community Banks Opt Out of Wealth Management

In the current issue of Bank Investment Consultant, contributor Michael White details some of the reasons that thousands of community banks have opted to not offer wealth management services to customers. White says these banks are making a mistake, and uses an analogy to outdated hi-fi audio systems to illustrate their backward thinking. He even offers his analysis in the form of an acronym: HI-FI.

To read White's original article, you can access it here.

<b>H: The Habit of Inertia</b>

The habit of inertia is great. During the good times, senior management is too busy with positive momentum in an existing core business. During bad times, it is too busy putting out fires. Meanwhile, the board of directors is not necessarily knowledgeable enough on its own to consider in-depth a proposal to start an investment program. So the mind-set is: “Let’s stick to our knitting and do what we know.”

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<b>I: Ignorance</b>

Ignorance as to how to get into the business prevents many banks from properly evaluating the opportunity or even where to get answers. It’s tough for community banks to find time and sufficient resources to investigate and evaluate any business idea—especially an investment business. There are many levels of approval even before a bank begins searching for a third-party marketer.

<b>F: Fear of Change</b>

Fear of change inhibits progress and adoption of new business lines. It reflects lack of understanding of products, brokers, financial advice and even the purpose and benefits of establishing an investment program. There is fear of the risks involved as well as customers’ reaction. There is fear of how the employees will relate to the broker and whether customers will be approached with proper, compliant explanations of the bank’s investment services.

<b>I: Improvident Behavior</b>

Improvident behavior by banks is simply not acceptable anymore. Fortunately, many observers are learning this lesson. Banks in general and community banks in particular can no longer simply stick with what they know from days of yore. These days, not foreseeing and providing for the future cannot be done with impunity. Spread income is not enough these days. And when it is the overwhelming source of net operating revenue, it can constitute a potentially traumatic concentration of bank revenues, as we have seen the last few years.

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<b>Get with the Program</b>

Get with the program. Or just like that old hi-fi and all your old records that were replaced, your bank could become a thing of the past too.