CHAPEL HILL, N.C.—Financial advisors inside credit unions appear to be better positioned to adapt to the Department of Labor's fiduciary standard for qualified retirement accounts than those working inside banks, according to a new study.
The key differential? Credit unions have pulled ahead in the race to transition to fee-based business, according to the study by Kehrer Bielan Research & Consulting.
"The new regulation will push all advisors working in financial institutions to transition from primarily transaction business to nearly all advisory business," said Tim Kehrer, co-author of the study and senior research analyst at KBR&C in a released statement. "The average credit union in our annual benchmarking survey generates one quarter of its overall revenue from advisory fees—a 19% greater share than the average in banks that own their broker dealer."
'Tremendous Progress'
According to KBR&C, credit unions have made tremendous progress in the transition to advisory business in recent years. The 2015 benchmarking study found that credit unions generated 18% less advisory revenue than the bank broker dealers, relative to total revenue. Advisory revenue as a share of total revenue increased by 39% in credit unions year-over-year, while it decreased slightly in the bank BDs, the company said.
"Large banks that own their broker dealer generally have made the transition to making advisory a top business priority for the past several years," commented Dr. Kenneth Kehrer, a principal of the firm, in a statement. "Our study suggests that some credit unions have followed the lead of the large banks, and they appear to be doing a better job of it."
The 2015-2016 Kehrer Bielan Credit Union Investment Services Benchmarking Study drew on data from 944 credit unions with investment services offerings and an in-depth survey of a sample of 46 credit unions about the workings of their investment services businesses. The study compared the performance of the sample of credit unions to the performance of a dozen top bank broker dealers.
Among the other findings:
- Growing advisory revenue helped to keep average financial advisor productivity high in the credit unions in the survey. Average gross investment services revenue per financial advisor was $438,917 in 2015, essentially flat from the 2014 average of $444,873. Meanwhile in the bank broker dealers, average revenue per advisor was down 6%.
"The big news out of last year's study was that average financial advisor productivity in leading credit unions had caught up with average productivity in the large banks, which have tended to have more productive advisors historically," said Tim Kehrer. "The credit unions in this year's survey not only maintained average productivity, they increased their advantage over the large banks significantly, in large part thanks to strong growth in advisory revenue."