By The Numbers: Benchmarking Bank Brokerage

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By The NumbersBenchmarking Bank Brokerage

• BISA Community Regional Bank Forum
• Omni Interlocken Resort, Colorado
• September 17, 2006

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Examine Use of Benchmarking Data to Improve
Performance

• Benchmark performance How does my program stack
  up?
• Understand the key drivers of performance What
  are the levers we can use to improve productivity
  and penetration of our opportunity?
• Identify best practices How do the top
  performers excel?

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Kehrer-INVEST Community Bank Brokerage Study

• Detailed questionnaires completed by
• 26 community banks less than 2 billion in
  retail deposits
• 25 super community banks 2-7 billion
• 19 regional banks 7-35 billion
• 12 TPMs provided data on 3,000 financial
  institution subscribers
• account for 31 of all bank investment sales

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Broker Productivity

• Average annual gross revenue of bank brokers does
  not depend on the size of the bank

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Broker Productivity

• The average broker productivity in the TPMs is
  less than half the average reported in our survey
• Selectivity bias more likely to participate in
  survey if your performance is above average
• Including the TPM data allows us to include weak
  or half-hearted programs

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Deposit Revenue Penetration

• Better benchmark for a bank is comparing
  brokerage revenue to the banks opportunity
• Comparing deposit penetration enables us to
  compare banks of different sizes

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Household Revenue Penetration

• An alternative measure of the size of the banks
  opportunity is the number of bank customer
  households
• Banks and credit unions have wide variation in
  deposits per household
• Community banks in survey had 36 higher revenue
  than super community banks, controlling for their
  size

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Impact of Broker Coverage on Household Revenue
Penetration

• Adding brokers increases revenue penetration
• Why dont all banks hire more brokers?

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Impact of Broker Coverage on Broker Sales
Productivity

• Shrinking household territories can compress
  broker productivity
• Note that productivity actually increases in
  banks with very thin coverage if they increase
  rep headcount
• How many brokers should a bank have?

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Best Practices Analysis

• ? Choose measure of top performance
• top quartile in profit contribution from retail
  investment services per bank customer household
• top 25 in household profit penetration
• ? Determine what those best practices bank
  brokerages do differently from others

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Rep Household Coverage2005

• ? Reps in best practices bank brokerages have
  household sales territories that are 43 smaller
  than other banks
• Most banks have too few reps for the size of
  their customer base
• The other banks would have to increase their
  broker headcount by 72 to have the same
  household coverage as the best practices banks

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Broker Coverage by Size of Institution

• Controlling for their size, community banks in
  survey had 20 more brokers than super community
  banks
• Broker coverage accounts for 55 of variation in
  household penetration by bank size

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Referral Performance2005

• ? Best practices bank brokerages produce 28 more
  referrals, controlling for the size of the bank
• Referral penetration has declined in both best
  practices and non-best practices banks
• Not as much of a key driver of top performance as
  in the past

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Referrals per Broker2005

• Best practices bank brokerages produce just 5
  more referrals per broker
• The larger number of referrals are spread over a
  larger number of reps
• Referrals per broker have declined 35 since 2001

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Summary

• Benchmarking data can help you gauge how your
  program shapes up, and understand your
  performance in the context of industry trends
• Benchmarking surveys tend to be biased upwards,
  because banks are more likely to participate if
  they have good performance
• You should benchmark both results e.g., customer
  penetration and key drivers of performance
  e.g., coverage, referrals, etc.
• Benchmarks may be even more valuable in
  identifying key drivers of performance and best
  practices

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Kehrer-INVEST Community Bank Brokerage Study

• Many more benchmarks
• Available in October
• www.kehrerlimra.com