What Are Referrals Worth?

Advisors in banks and credit unions enjoy an advantage over other providers of financial advice because they have the support of the branch network and the client referrals branch staff generate. How valuable are these referrals? The market tells us how advisors value them.

Kehrer Bielan research on advisor compensation finds that at every level of production advisors based in bank or credit union branches earn a payout that is at least 5 percentage points less than other bank-based advisors who do not have access to the branch network.


For example, branch-based advisors who produce $400,000 a year in gross revenue have an average payout of 36%, five percentage points less than bank advisors who sit outside the branch network. Similarly, at $500,000 in average annual gross, branch-based advisors have an average payout of 38% compared to 43% for bank advisors who do not have access to branch referrals.

So the branch referral network allows banks and credit unions to pay lower compensation to their core advisors, which has been the foundation for their relatively wider profit margins from investment services, compared to non-bank firms. But we have seen a drying up of referrals as branch traffic has declined. According to Kehrer Bielan research, the typical financial institution now generates only one-third of the referrals it produced in 2004, controlling for the size of the bank.

In the wake of the implementation of the DoL Fiduciary Standard, we expect substantial migration of advisors from firm to firm. Will banks and credit unions be able to maintain lower payouts in the face of thinner referrals from their branch networks?

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