A pathway to growth: banking and wealth-management partnerships

Adding select products and capabilities can lead to deeper customer relationships and higher levels of growth and profitability.

Digitalization is blurring traditional boundaries in financial services. Today’s retail customers, influenced by their experiences with firms such as Amazon, view banking and wealth management as parts of the same personal-finance ecosystem and increasingly expect to have all their financial needs met in one place.

The dynamics have set off a rush to the middle, with banks offering wealth-management products and wealth firms offering bank products in hopes of capturing greater wallet share and to defend existing business. Convergence has become a pathway to growth. The question is how to achieve it.

Even the largest institutions often lack the in-house agility, bandwidth and resources to innovate as quickly as the marketplace demands, or to acquire all of the capabilities they need. A third option—offering state-of-the-art products, services or distribution channels developed and maintained by someone else—is gaining traction.

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The digital transformation has highlighted the need to work with partners on developing customer-facing products and services. Competition from fintech firms is growing, and customer expectations, conditioned by holistic, frictionless experiences elsewhere in the digital world, are changing.

Partnering to deliver differentiated products and capabilities at scale can save financial institutions (FIs) time, capital and labor costs while producing the same—or even better—customer outcomes and financial returns.

The intersection of banking and wealth management

Banks are leveraging partnerships in a variety of ways to bolster their wealth management and financial wellness offerings. Many are adding investment and trading services, personal financial management systems or robo-advisory tools to give customers a more expansive view of their financial lives.

For example, Citigroup is working with Jemstep, a fintech subsidiary of investment manager Invesco, to offer a digital investment advisory tool for retail banking clients. The platform matches customers with portfolio options based on a series of questions, and helps them make money-management decisions that fit their needs.

Others are also using partners’ capabilities to boost operational efficiency and their ability to scale.  M&T Bank’s partnership with LPL Financial gives the bank’s brokerage and insurance advisors access to the fintech broker-dealer’s platform, integrated workflows and differentiated products, allowing those advisors to focus on client relationships. And BBVA Compass uses the workflow automation, multi-currency applications and other tools on SEI’s wealth platform to deliver superior onboarding capabilities and improve performance reporting.

Wealth management firms are pursuing convergence from the other side of the industry spectrum, using partnerships to add depository products, loans, payments and other banking capabilities that can integrate with their wealth offerings.

Some are working with fintech firms. Carson Group provides its clients with FDIC-insured checking accounts, bill pay and other services from a network of banks via Galileo Processing’s Money+ platform. Others are partnering directly with banks – Betterment, a robo-advisory firm, leverages a relationship with nbkc Bank in Missouri to offer its clients checking and savings accounts.

In a sign of how the landscape is evolving, Broadridge Financial Solutions has launched an end-to-end technology platform that allows wealth management firms to offer securities-based loans (SBLs) that are underwritten and funded by banks. Bancorp Bank, which has SBL expertise, is an early bank participant.

How to work with ecosystems

Getting the most out of partnership models requires FIs to honestly assess their strengths and weaknesses, prioritize opportunities based on return potential, and then plan and execute sharply. Key steps in the journey include:

  • Aligning vision and strategy: Assess customer needs and the FI’s competitive position to identify urgent strategic gaps, such as missing products or a lack of self-service capabilities, that can best be filled by partners.
  • Prioritizing focus areas: Leverage industry and proprietary data to evaluate build/buy/partner alternatives for the best brand fit and return potential.
  • Developing a plan: Prepare a baseline version of the institution’s current operating model and work with partners to confirm that the FI has the talent, tools and IT capabilities needed to execute a platform-based business model.
  • Executing the transition: Work out partnership details, including ownership, management, incentives and exit provisions, and form accountable teams to integrate partner capabilities.

While we don’t expect to see a complete convergence of the banking and wealth management industries, the rise of ecosystem business models makes integrated offerings feel both necessary and attainable. In the digital world, leveraging partnerships to add select products and capabilities can lead to stronger, deeper customer relationships and higher levels of growth and profitability.

Howard Moseson is head of banking and capital markets strategy, and Andre Veissid is partner, strategy and transactions, both at EY-Parthenon.