4 Secrets To Growing Your Advisory Business

Tap into a well of new income potential through these small, strategic shifts.


As an industry, financial institutions have done a spectacular job of growing their fee-based business. Managed money skyrocketed from just 1.2% of the industry’s total investment and insurance services revenue in 2004 to more than 10% in 2010.

But not every credit union is taking home an equal piece of the pie. According to data drawn from the annual Kehrer-LIMRA Financial Institution Program Benchmarking Survey and insight featured in the white paper Building Your Fee-Based Business published by PrimeVest, the median financial institution earns only $42 in advisory fees for every million dollars of deposits. This translates to just 3% of the institution’s total insurance and investment revenue.

By contrast, an elite few earn as much as $375 in advisory fees per million dollars in deposits, with fees accounting for 12.3% of total investment program revenue.

How do these institutions achieve such exceptional results? A closer look reveals the best practices that set these programs apart — and offers ideas that other credit unions can adopt.

1. Start With The Plan

As advisors move from one-off transactions to holistic solutions, financial planning is the first stop along the way. It helps investment professionals capture a richer picture of their members’ needs and also repositions advisors as trusted guides to life’s financial dilemmas. Creating a financial plan can pay off with higher sales of separate accounts and mutual fund wrap fees. In fact, managed money earns more than twice the share of insurance and investment revenue at credit unions that have adopted a financial planning methodology, compared to those that have not.

2. Shoulder A Fair Share Of The Burden

Advisory fees over the first year of an account’s life produce only one-half, or even one- sixth, of the revenue that a sales commission would generate. Many credit unions allow investment professionals to feel most of the pinch. Naturally, this sudden drop in income can dampen advisors’ enthusiasm for growing their advisory business.

Credit unions need creative ideas to ease the transition. Some programs credit the entire first year’s fees to the grid as soon as the account is opened; others pay 70% to 75% of the first year’s fees, then a flat 30% to 35% thereafter. The most successful approach may be to increase the grid payout on all business, which tends to increase total production as well. Of course, a credit union must plan carefully before it commits to absorbing more of the costs of transition. All too often, an aggressive long-term growth plan falls by the wayside as soon as management confronts a short-term erosion of profits.

3.  Train For Gain

Education is critical to helping advisors transition from selling to consulting. Successful curricula covers the gamut of skills and knowledge that advisors will need, including the use of financial planning tools, how to understand advisory offerings, and how to prospect for high net worth members. Often, credit unions can call upon their vendors and broker-dealers for training help.

A particularly important lesson to teach is how to segment books of business and identify members better suited for advisory accounts. For example, targeting affluent members who rarely trade or purchase products can help grow the advisory side without cannibalizing existing transaction business. In addition, members whose portfolios are concentrated in a single mutual fund family might gain greater diversification with a broad-based advisory approach.

4.  Keep Advisors On The Trail

Credit unions have made it amply clear that they — and not the investment professional — own the member. So why should investment professionals sacrifice income now when someone else may reap the reward later, after they leave their jobs or retire?  To answer that question, a few forward-thinking institutions now vest trail fee or recurring income. Some credit unions also let retiring advisors retain a portion of the fees when they hand over their books to junior advisors, which makes for smoother member transitions.

Advisory models offer better alignment with members’ interests, as well as the potential for recurring revenue. For credit unions looking to capture their fair share of this growing market, it makes sense to learn from the best.

Finding your financial institution's potential for more profitable investment and insurance services doesn't have to be the result of trial and error. For well over a quarter century, PrimeVest has focused exclusively on serving the needs of banks, credit unions, and their clients, and is a leader in helping them and their advisors grow their revenue stream and services.  For more information about how PrimeVest can help you utilize best practices to grow your program revenue effectively, visit www.primevest.com.



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