Credit unions are still searching for ways to increase revenue from their insurance and investment products. Most credit unions could dramatically increase the penetration of these products among their membership by taking two simple steps: hire more advisors and give them smaller territories.
The 2010 Kehrer-LIMRA Financial Institution Investment Program Benchmarking Survey examines what happens when financial institutions give advisors excessively large territories over which to roam.
The statistics paint a dramatic picture. At one extreme, financial institutions that staff very thinly, stretching each advisor over a territory of more than 19,232 households, generated average revenue per household of only $12.16. That’s an astounding 73% less than the industry average. These institutions could nearly double their revenue merely by moving only one rung up the ladder to the next quartile of coverage, thereby shrinking the number of households per advisor to between 11,667 and 19,232. They would still be thinly staffed relative to the industry average, yet their revenue per member household would skyrocket.
By contrast, institutions with the thickest coverage ─ fewer than 7,762 households per advisor ─ generated $84.64 in investment and insurance revenue per household, nearly double the average for all financial institutions.
The conclusion is inescapable. Credit unions that want to generate more revenue should consider hiring more advisors.
But if the solution is so obvious, why are some still hesitant to make a move? For one thing, hiring today is no easy task. Recruiters face an industry-wide talent shortage, stiff competition for candidates, and sticky employment contracts. Also, many credit unions still labor under staffing restrictions imposed after the financial crisis.
Another important obstacle is resistance from the institution’s own advisors. These individuals naturally believe that a smaller territory represents a smaller opportunity (with fewer households to serve) and they worry about the impact on their own wallets.
However, the data suggest these fears may be largely unfounded. Advisor production actually declines very little as territories shrink, except at the far ends of the spectrum. The top quarter of institutions by coverage ─ those with the smallest territories and most advisors per household ─ average $224,964 in sales productivity. This is only 5% less than the average for all financial institutions.
It’s true that institutions with very thin coverage provide an exceptionally rewarding environment for advisors. Advisors who serve more than 19,232 households average the industry’s highest individual production numbers. The trouble is, that honor comes at a very high cost to the institution itself. Using average figures, dividing a territory of 20,000 households in half can increase total revenue from $292,627 to $473,904 a year ─ an annual increase of two-thirds. In today’s environment, how long can a credit union afford to forgo that much revenue?
There are many reasons why thicker coverage works. With fewer households to manage, advisors can devote more time and resources to each household. They can also build deeper relationships with branch staff, instead of spending time meandering from branch to branch. As a result, branch employees can learn to identify prospects more accurately, increase their referral rates, and better understand the value of insurance and investment solutions for members.
It’s clear that some credit unions have already solved the mystery of growing their insurance and investment business. Achieving your institution’s own potential for these profitable services doesn't have to be the result of trial and error.
For well over a quarter century, PrimeVest ─ broker dealer and part of Cetera Financial Group, Inc─ has focused exclusively on helping banks, credit unions, and clients grow advisor revenue streams and services.
For more information about how PrimeVest can help your institution utilize best practices to grow program revenue effectively, visit www.primevest.com and download our new white paper Optimizing the Advisor-to-Client Ratio.