Setting Revenue Expectations for Next Year

When we convened our semi-annual study group of top bank brokerage executives in Chapel Hill last month, one topic immediately emerged as being a top concern for the group – they expect investment services revenue to decline in 2017, but bank management actually expects revenue to grow.

The gap in expectations is enormous. The brokerage executives project their firm's revenue to fall 7% to 20% next year due to the disruptions caused by the implementation of the Department of Labor's Fiduciary Rule, fewer commissions from transactions, and shrinking advisory fees. At the same time, bank management is expecting investment services revenue to grow by 4% to 6%.

Houston, we have a problem.

If these executives are unable to adjust the bank’s expectations for next year, they risk feeling the heat when they fall short of plan.

So how can those who manage investment services businesses in banks and credit unions re-set the expectations of the top of the house for life after DoL?

One study group participant proffered an approach that had worked for him. In conversations with bank management, he pointed out that the DoL rule’s impact on the investment services business will be similar to the major disruption that Dodd-Frank had on the reduction of bank fees and the increased expenses for compliance.

Another potential approach would be to point to the independent analyses that have been conducted that project a revenue decline for the industry as a result of the DoL rule. Of course, those projections are of limited use because they don’t take into account the specifics of your business.

Whatever the approach taken, we believe it is imperative for bank and credit union investment services executives to set proper expectations for what their businesses are likely to look like after the DoL rule goes into effect next year.

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