The push into wealth management by U.S. banks is generally positive for their credit profiles as it helps bolster, and diversify, their revenues and earnings, says Fitch Ratings.

In a new report, the rating agency observes that many U.S. banks are seeking to bolster their wealth management capabilities as the growth in core bank products “remains tepid” and net interest margins are compressed. Banks are building these capabilities by poaching advisory teams, boosting their hiring of financial advisors, and acquiring existing firms in the sector, Fitch reports.

It also notes that several banks are investing in technology to allow customers’ to track investments and make investment decisions through the banks’ interface. “Technology platforms and brokerage services are scalable and can help grow both assets under management and transaction fees,” it says.

The benefit of this increased focus on wealth management, Fitch says is that it, “provides recurring sources of income and requires less capital usage than traditional bank loan products.” Wealth management can also “strengthen and make stickier” relationships with good customers, Fitch adds, “which tend to provide additional deposit funding, as well as opportunities for cross-selling a bank’s core products, such as mortgage lending.”

“Regardless of which market segment may be targeted, we see wealth management as diversifying a bank’s revenues away from its core interest rate-sensitive loan products. Some banks are also using wealth management to help subsidize traditional banking products,” Fitch says.

One risk of these strategies, Fitch says, “is the possibility that, as competition for advisors and wealthier clients heats up further, profitability may be marginalized.” And, it notes that compensation costs tend to be higher in the high net-worth segment.

To address that, Fitch says banks are focused on using teams to service clients in order to reduce their reliance on one advisor. “To the extent that banks are successful with the shift, this strategy may help insulate performance over time,” it says.

“With appropriate control of costs and management of the many compliance issues, wealth management businesses can help support a company’s ratings,” Fitch says; adding that “the distribution force of wealth management can be a key competitive advantage, especially for larger firms.”