Finacle Blog:Simplifying how banks earn wealth management revenue

From mere distributors who facilitated transactions, banks today have progressed to performing an advisory role for their clients. And this is in line with client expectations. Today, customers look at banks as a one stop shop to meet their financial needs. In this scenario, it is wealth managers’ aim to manage clients’ wealth holistically, offering solutions for all their financial requirements - constantly tracking their portfolio, comparing it against benchmarks and re-balancing when required. This expansion of banks’ role as wealth managers provides new opportunities to enhance their fee income generation capabilities.

To enable investors to build a mutual fund portfolio and manage the same, banks charge a transaction fee, a periodic wealth management advisory fee or a combination of the two. Banks charge a transaction fee for facilitating transactions in mutual funds. It earns an advisory fee under the broader service of managing the clients’ wealth. The online platform for investing in mutual funds is increasingly becoming popular amongst investors as it offers the convenience of transacting without the hassle of filling physical forms. Apart from banks, other financial firms also follow the online distribution model. These online transaction websites may or may-not charge a fee from the investors. They earn revenue from having a large customer base and earning trailer commission from the fund house. Banks however score over these sites by offering advisory services to their clients besides the more basic transaction service - comprehensive analysis on the markets, the different mutual funds available and impact of various economic factors on the clients’ portfolio, among others. The more specialized the service, the higher could be the fees charged by the bank for the same.

Banks may define different fee structures for different categories of clients. Hence clientele in higher segments of wealth could be given a favorable fee structure over clients with a lower asset base maintained with the bank. A bank intending to increase its asset base, could charge a lower fee for higher transaction amounts or for larger mutual fund portfolios maintained with the bank. Banks may even charge different fee for different mutual fund schemes. Investments in equity mutual fund schemes could have a higher transaction fee for the investors compared to debt mf schemes. Similarly different transactions in mutual funds could imply different fees being charged to the client. In order to encourage small time investors, a bank may not charge any fees for investment through systematic investment plans.

Hence, banks tailor their fee structure to meet their individual requirements of servicing a category of customers, increasing revenue share from a particular customer category and increasing their assets under management.

You can also read the white paper - Wealth Management: The New Revenue Frontier for Banks