Emergence of “elite” account managers: Includes chart

At the same time, investment dealers, particularly the bank-owned dealers, are weaning themselves off commission-based business and are moving toward the steady fee-generating products that once
characterized retail banking. Bank-owned dealers are also chiselling away at the advisors’ share of the grid and substituting cash compensation with company stock, thus cutting margins and tying advisors more closely to the bank.

As this cultural convergence between bank and brokerage takes place, similar trends are emerging in their sales forces.
Specifically, the retail banking business is witnessing a growing bifurcation between “elite” account managers who handle fewer, richer clients and the more traditional bankers who take on just about any client.

This trend has been apparent in the
brokerage industry for the past couple of years, largely led by bank-owned dealers.
And the data from Investment Executive‘s 2005 Account Managers’ Report Card suggests that the same approach is taking hold in bank branches. Faced with tight margins and heavy competition, the banks are increasingly eager to deepen their relationships with high-value clients in the hope they can grow revenue and exploit cross-selling opportunities. Delivering on this service objective requires a strong client focus — and a fairly mercenary approach, as well: cozy up to clients who pay well and cut loose those who don’t.

IE’s Report Card reveals this trend by zeroing in on account manager productivity as measured by assets under management per client. In this year’s Report Card, IE asked 245 advisors at the six national banks and various credit unions to rate their employers on 29 categories. We also asked for demographic information.

Those numbers reveal that, as in other segments of retail financial services a group of elite account managers with bigger books and smaller client bases, is emerging at most of the banks. These bankers have a higher proportion of larger accounts, receive more incentive-based compensation and make greater use of third-party products.

Drawing a dividing line between elite account managers and the rest of the field is necessarily something of an arbitrary exercise, so IE adopts the golden rule of 80/20 — 80% of business comes from 20% of your target market — and focuses on the top fifth of account managers as measured by AUM/client. The break point between the two groups is an average AUM/client of $200,000.

Breaking down our survey’s responses along these lines, we see the same trends in the retail banking industry that have become so familiar on the brokerage side.
The elite bankers have far fewer clients and many more assets than their colleagues.
The average AUM/client for the top 20% is more than $440,000, vs slightly more than $70,000 for the other 80% of bankers.

This huge disparity is because the top bankers have almost triple the assets under management — more than $75 million in assets, vs less than $30 million for the smaller producers — and less than half the number of clients. So they spread this much larger asset total across a much smaller client base — averaging just 228 clients on their books, vs more than 590 for the rest of the industry.

The overall average client base for the retail banking industry is more than 500, so these smaller books appear to be the exception rather than the rule. Indeed, many account managers still say their client roster runs into the thousands. But this emerging elite force is clearly offering a much more focused, high-end service for wealthier accounts.

This observation is supported by the fact that elite account managers report a much greater prevalence of larger accounts within their books. For both the top 20% of bankers and the bottom 80%, accounts that are smaller than $250,000 is the single most common account size; they represent 34% of the average elite bankers’ accounts and 53% of the books of the rest of the industry.
But the similarity ends there.

@page_break@The elite managers’ books are almost as heavily populated with accounts in the $250,000-$500,000 range; 33% fall into this category. But the drop-off for the rest of the industry is tremendous. The other 80% have slightly more than half as many accounts in the $250,000-$500,000 range as they have in the lowest category, or about 27% of their books. Overall, 80% of the smaller bankers’ accounts are worth less than $500,000, vs 67% for the elite account managers.

Consequently, the top bankers hold an increasingly large advantage as we move into bigger and bigger accounts. More than 17% of elite accounts are in the
$500,000-$1 million range, compared with about 12% for the smaller producers. More than 15% of elite managers accounts are worth more than $1 million, including 5% that are larger than $2 million in value. By contrast, the rest of the industry reports slightly more than 4% of their accounts exceed $1 million, and less than 1% of that involves accounts worth more than $2 million. (Please note that these numbers often don’t add up to 100% because of rounding, and the fact that bankers’ responses don’t always add up to 100%.)

What is driving these top-producing bankers to chase these higher-value accounts? Compensation appears to be a big part of it.
The elite managers are enjoying more variable compensation and less salary than their counterparts, and that appears to push productivity. The top bankers generate only about 63% of their annual compensation from salaries, vs more than 76% for the others.

The top bankers, instead, are drawing much more transaction and fee-based compensation. They report that about 19% of their annual compensation comes from transactions, and more than 11% from fee- or asset-based sources, with other types of compensation making up the rest of their annual remuneration. The rest of the industry, by contrast, gets less than 9% of its compensation from transactions, and only about 3% from fees (other forms of compensation is responsible for the rest).

The higher proportion of the elite account managers’ compensation that comes from variable sources is also reflected in their asset-allocation choices. They tend to use fewer proprietary products and more third-party products. For both groups, proprietary managed products (such as mutual funds and wraps) are still the No. 1
asset class, with 46% of the top bankers’ books in these products, vs 54% for the bulk of the industry.

The top bankers have about the same amount in cash as the rest of the industry, but almost 23% of their books are invested in third-party managed products and more than 15% is allocated to other products. The other 80% of bankers have about 19% in third-party managed products and just 9% in other products.

This greater use of third-party products by top bankers may reflect a general trend — bigger clients have more sophisticated needs that require third-party products, and top-flight bankers must demonstrate an increased level of independence to win their business. But it may also be indicative of the open-architecture strategy of the bank that has produced the largest share of high-end account managers, CIBC.

These elite bankers are not evenly
distributed throughout the industry. CIBC is by far the leader, accounting for about 35% of the elite bankers. According to the survey, they may not be the happiest of the group, but they certainly seem to be the most productive.

Royal Bank of Canada and TD Canada Trust are equally represented among the elite bankers. Bank of Nova Scotia is just behind that group, and Bank of Montreal is the clear laggard.

In the same way that the elite bankers aren’t evenly distributed among the firms, they aren’t well dispersed by location, either. On a geographical basis, almost three- quarters of top bankers come from Ontario.

Yet Toronto is not the leading location for them; that distinction goes to Ottawa.
Toronto wins the numbers game if you include some of its outreaches, such as Richmond Hill and Mississauga, but the data show there are more elite bankers in suburbs, smaller cities and towns than in major metropolitan areas. That may be something to think about when banks are finally allowed to merge and start to shutter
branches.

In the meantime, it appears as if the banks are driving their account managers in much the same direction as they’ve pushed their brokers — to focus on high-value clients.
These bankers are being driven to achieve the best way the industry knows — with increased pay for performance. And increased independence is a consequence.
IE