Banks are heaving their in-house broker-dealer operations. During the past year, four banks phased out their units and outsourced the business to third-party broker-dealers, according to management consulting firm
That leaves only 40 banks that have their own brokerage units, a mere 2% of the 1,809 banks that offer investment services.
Banks are bowing to technology, compliance and other cost pressures and shifting their businesses to large third-party broker-dealers that have the economies of scale to run the businesses more cost effectively,
The other three banks to outsource their investment services businesses last year were
Indeed, only the largest banks have the scale to run their own brokerage units. According to Kehrer Saltzman’s research, the 40 institutions that have their own broker-dealer account for 79% of all bank consumer deposits. “So most bank customers experience a bank’s investment services offering as a bank-branded BD,” Kehrer noted.
Bank broker-dealers need to have at least
Outsourcing, however, has its drawbacks. Bank executives worry that new guidelines from the
“The OCC is saying that just because you’ve outsourced something to a vendor doesn’t mean you don’t have the responsibility to be managing it and maintaining the risk,” Kehrer said.
Outsourcing also dilutes the brands that bank brokerages invested a great deal of money to build. In addition, executives fear that outsourcing would lead to a loss of control of the client experience.
Still, the trend is toward outsourcing. “Other banks are in discussions with the TPMs about outsourcing,” said Kehrer. “Cost pressures, the need to provide better client-facing and advisor-facing technology, and regulatory pressure all continue to intensify.”
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