Groundbreaking Research Proves that Banks Seeking to Increase Deposits Benefit from Promotion of Investment Services

CHICAGO, Nov. 20, 2019 /PRNewswire/ -- Today, the Bank Insurance & Securities Association (BISA) released a groundbreaking research report -- Smart Investment: Evaluating the Total Return on Investment Services to the Banking Enterprise – that quantifies the positive impact on core banking income experienced by banks that have and promote investment services.

Investment services are not considered a core business of most financial institutions, and consequently most banks and credit unions have not prioritized the opportunity to serve the investment needs of their clients and capture more of their investable assets. 

"This study reconfirms that households that have an investment relationship with their bank or credit union exhibit greater loyalty to the institution, use more banking products, and remain customers longer," said Kenneth Kehrer, PhD, of Kehrer Bielan Research & Consulting who was commissioned by BISA to conduct this data-driven research.

BISA is investing in this research to help enterprise management see how an increase in customer penetration of investment services – the share of the institution's customer base with an investment relationship -- increases overall bank customer profitability, especially for the coveted mass affluent segment, by demonstrating:

• The linkage between providing investment advice and customer loyalty, and
• The impact of investment advice on growing deposits and loans and increasing customer profitability

In the first of a two stage-study, Kehrer Bielan analyzed consumer data from a highly regarded national financial survey to measure the impact of the investment relationship on the growth of deposits and loans.  The study also examined the difference in investment services penetration between mass market, mass affluent, and higher net worth households, defining the mass affluent as households with between $100,000 and $1 million in investable assets, and the implications for the overall banking enterprise.

"Central to the mission of BISA is to provide high-value information to senior executives representing all segments of the financial services industry," said Mike Miroballi, BISA Research Committee Chair from Huntington Investment Company. "We are pleased to provide the comprehensive survey report to BISA members along with a tool to estimate the contribution of investment services to income growth for their institutions."

Key takeaways from the report include:

• Translating the increases in deposit and loan balances attributable to investment services into the impact on the institution's income is problematic, given fluctuations in interest rate spreads, differences in profitability by product, and customer usage. Current experience of some BISA member institutions suggests that an incremental $1 million in deposits increases topline revenue by $15,100, and an additional $1 million in loans generates revenue of $18,400. A tool has been created to help BISA members estimate the contribution of investment services to income growth in their own institution.
• The largest consumer banks have better customer penetration of investments than community banks and credit unions. But the breadth of penetration by the largest banks is greater than the depth of penetration, reflecting the "one-and-done" nature of the prior transactions model. Financial institutions have a significant opportunity to capture a larger share of their investment clients' assets.
• Banks and credit unions have much better investment penetration of coveted mass affluent households than the mass market. The more affluent the household, the more likely it is to own an investment at its primary bank, or any financial institution. The investment relations results in greater customer loyalty and satisfaction, more use of banking products, and an increase in the share and level of customer assets held at the bank, all of which grow with the level of affluence.
• The increased customer loyalty also translates into lower customer attrition, so the bank or credit union is earning profits on these enhanced relationships longer. The upshot is that establishing an investment relationship with a banking customer changes the landscape for overall financial advice going forward – the bank is now much more likely to be the primary provider of financial advice.

To learn more about becoming a member of BISA and obtaining the report, contact [email protected].

The Bank Insurance & Securities Association is the leading financial services industry association dedicated to serving those responsible for the marketing, sales and distribution of securities, insurance, and other financial products and advisory services through the bank channel. Member companies include depository institutions of all sizes, their broker/dealer and mutual fund subsidiaries, third-party marketing companies, product manufacturers and firms providing products, technology or services to support these enterprises. For more information, visit www.bisanet.org.

SOURCE Bank Insurance & Securities Association (BISA)

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