2022 Predictions for Financial Institution Wealth Management

2021 was a busy year in bank / CU wealth management, but what’s waiting for us in 2022?

This blog covers what bank and CU executives should expect.


API’s Will Finally Be Here – And Its About Time

According to a recent Broadridge survey of Americans, 65% said businesses need to improve customer experiences.  When asked about their wealth management firm, less than 20% said they were satisfied with their client and tech experience.

Corporate investment in technology is at an all-time high so why are these numbers so bad?  Nearly all of our new clients in 2021 asked if there is a broker-dealer out there that has software that ties the BD’s platform to the bank or CU’s platform (API or Application Programming Interface).  The answer has always been the same.  It does not exist – at least in the form consumers and executives are looking for.  Some BDs have scaled back APIs, but we believe they bring very little value to the financial institution.  APIs combined with Artificial Intelligence (AI) will arrive in 2022 bringing much needed data aggregation and automated high-touch client interactions.

For decades, most financial institutions have siloed what is about to be un-siloed.  Bank and CU executives need to start preparing for the cultural shift AI and API’s will bring to how your lines of business operate.

Broadridge is not a small firm – they are one of the largest fintech firms on the planet.  We have no affiliation with Broadridge but do follow them and believe their surveys add value to our clients.


Third-party Broker-dealers Will Determine The Fate Of Bank-owned Rias

In short, if third-party broker-dealers don’t change (and soon), RIA’s will largely replace them.  This isn’t so much a 2022 prediction, but we believe what happens this year “will determine the fate of bank-owned RIAs”.

Currently, bank-owned RIAs rarely work in the community bank / CU space.  They continue to be a good profit model for larger banks ($50B+) and we believe RIA acquisitions by larger banks will continue in 2022.  Large banks that own large RIAs are seeing EBITDA in the mid 30% to 40% range.

Community banks and credit unions (our market) are still much better off choosing a third-party manager to act as Supervisory and either employ the advisors themselves (Dual-Managed) or let the TPM employ them (Managed).  Because of the aforementioned reference to client experience and fintech, this is changing.

Unless TPMs like Ameriprise, Cetera, LPL, Raymond James, etc. start making significant improvements in how they support financial institutions, the bank-owned RIA will become a serious threat to their models.  Our clients’ interest in RIA acquisition was at the highest level we have ever seen in 2021.  While acquiring an RIA can be very expensive, EBITDA is quickly approaching levels most traditional TPM models realize.  With capital investment in infrastructure and technology continuing to drop, acquiring or starting an RIA as a bank or CU is starting to not look so bad.  Community banks and CU’s that own RIAs are seeing EBITDA in the 22% to 28% range.

Last thing on RIAs: If you are a bank or CU and you currently have a split agreement of some sort with a local RIA, we implore you to contact us.  This model provides the least amount of benefit to your customer, your financial institution, your other lines of business, and your bottom line.


The # Of Financial Institutions That Start Internal Wealth Programs Will Explode

2020 and 2021 brought the highest level of demand for assistance in starting wealth management programs we have ever seen.  We have also never seen the levels of success in startup platforms as we have recently.  The math best explains this trend:

  • A typical wealth management client produces around $20,000 in annual fee revenue, the income is very sticky & recurring, (good) financial advisor turnover is low, and the bank / CUs profit margin is between 22% and 32%. A typical commercial banking client produces around $35,000 in annual fee revenue, the income is not sticky or recurring, good lender turnover is high, and the bank / CUs profit margin is between 11% and 17%.
  • The wealth management business is booming and is not going to be slowing down anytime soon. We’ve talked about this in other blogs, but the largest transfer of wealth in history has started and will continue through this decade and long into the next.

These combined with the “big-bank slide” we have talked about is why community banks and CUs are creating wealth platforms at a record pace.


Location-independent Private Banking & Financial Advice Will Accelerate

It’s already here – and banks and CUs that have prepared, or are preparing, will benefit greatly.  Covid certainly accelerated the remote work trend, but it had been gaining momentum since the financial crisis of 2008.

Employees alone aren’t driving this.  Clients and members expect to have the ability to schedule meetings and connect with their advisors and private bankers via the institution’s digital channels.  These are through mobile apps, websites, and 3rd party video platforms like Zoom, Teams, etc.  As API’s develop giving end users the ability to leverage external account aggregation, these communication methods will become increasingly important and necessary.  In 2022, advisors and private bankers will no longer need an office in a branch.  They will need laptops, smart phones, and access to meeting rooms in multiple locations.


IN CLOSING, these topics are but a small part of what our firm specializes in.  That said, we believe these four are the more important takeaways for Chief Executives as we head into 2022.

To learn more about Compass Consulting’s services, visit our website www.compassconsulting.com or call 760-477-1299.

Back to Media