An old holy grail of banking since the 1980s has been to offer retail brokerage to customers, and magically attract all of the rest of their assets. Nevermind that retail brokerage is a rather cheap, transaction-oriented business. How that would entice customers to behave in the way that banks have wanted them to, for decades, is unclear. It's never worked before.
No doubt my old colleague and friend, consultant B, is reading this and smiling broadly.
However, now Banc of America is now allegedly offering 'free' brokerage. The Wall Street Journal ran an excellent piece analyzing this yesterday, demonstrating that the BofA offer is almost never going to be a good deal for anyone. The $25,000 in assets that must be kept with the bank is exclusive of any brokerage/investment assets. They must be commercial banking balances. The article does the math to illustrate how the necessary foregone earnings on the bank balances will, in almost all cases, outweigh the 'free' trading benefits.
Of course, it's ironic that BofA is doing this now, because pure retail brokerage is in decline. And every financial institution which has taken the brokerage route has failed in its objective to add significant value by cross-selling brokerage customers with bank services.
Consider this- if the cross-sell were working, then BofA wouldn't have had to offer 'free' brokerage, would they?
From the time I was with Chase, and we bought, then sold, discount retail broker Rose & Co., banks have bought and sold retail brokerages with distressing frequency. BofA itself first bought, then sold, Charles Schwab. Then bought Quick & Reilly. American Express, under Jim Robinson, bought IDS, and later, spun it off. Citibank just swapped its asset management operations to Legg Mason for the latter's retail brokerage operations.
But people just don't behave the way banks want them to behave. The customers who trade frequently are, in all probability, to lack the large asset bases that banks desire. The private bank-type customers with trust accounts and large investment accounts know better than to leave them in the hands of middling retail brokers owned by a commercial bank.
It's truly a Catch-22 for banks. Anyone who would want them for retail brokerage, they don't really want to serve. Anyone they really want to serve with asset management, doesn't want the bank's retail brokerage services.
Now you have Prince, Dimon, and Lewis at the helms of the country's three large, financial utilities...excuse me....commercial banks. And they continue to make the same mistakes with brokerage businesses as their predecessors of twenty years ago.
Will commercial bankers ever learn?
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