BRIDGING THE TALENT GAP...Notes: Total bank sample includes every company that files a Consolidated...

2019 WISE Member Meeting

Chicago, IL

October 30, 2019

BRIDGING THE TALENT GAP

Rethinking Talent for an Industry in Transition

1 AN INDUSTRY IN TRANSITION

All firms

Notes: Investment Management and Trust: trust, fiduciary, and investment-related services provided to high-net-worth individuals, including services such as personal trust, investment management,

custody, irrevocable, revocable trusts, individual retirement accounts, etc.; Wealth Management: the highest-level business unit in a firm that is dedicated to serving the needs of high-net-worth

individuals. It may be comprised of several discrete lines of business, such as private banking, trust, and investment management. Data exclude brokerage.

By total assets under management

MARGINS NEAR RECENT HIGHS

PROFITABILITY

Pre-tax operating margins are at or near recent highs. This piece of good news, however, may come at the expense of current and

future period revenue growth.

24.1%

31.7%25.8%

29.5% 28.3%24.8%

30.8%28.3% 28.4% 28.0%

Less than $1.5B $1.5B to $4B $4B to $10B $10B+ Universe

42.7% 43.1%

■ 2017 ■ 2018

© 2019 WISE Gateway. All rights reserved. WISE Annual Member Meeting | Chicago, IL | October 2019 | | 3

FTEs Revenue per FTE

Notes: Growth rates are compound annual growth rates. Full-time employees (FTE). *Total accounts per client excludes custody accounts.

Comp and

Benefits per FTE

Revenue per

Client

Total AUM per

Client

Loans per Client Deposits per

Client

FTEs Revenue per FTEComp and

Benefits per FTE

Wealth Management

All firms

Revenue per

Client

Total AUM per

Client

Total Accounts

per Client*

Investment Management and TrustAll firms

PROFITABILITYTHE PATH TO PROFITABILITY

The path to profitability is the same as always: modest growth, limited spending, near-zero FTE growth, larger client relationships

and accounts. Improvements in revenue per FTE have been largely matched by increases in compensation per FTE.

7.1% 7.9%

3.2%

0.2%

4.4% 4.1%

-0.3%

3.2% 4.4%

9.4%7.8%

9.3%

2.2%


Despite periods of strong economic and market growth, the investment management and trust growth story remains modest.

Talent need: improve growth and sales outcomes; retain business.

Investment Management and Trust Revenue Composition

GROWTHINVESTMENT MANAGEMENT AND TRUST GROWTH RATES

23.6% 23.6% 22.7% 21.6% 20.7% 20.3%

25.8% 28.3% 29.9% 31.1% 31.6% 33.7%

6.7%7.3% 7.3% 7.7% 8.2% 8.7%

16.5% 15.3% 15.6% 14.9% 15.1% 14.6%

27.4% 25.5% 24.4% 24.8% 24.4% 22.7%

Revenue

Growth Rates

2013 2018 CAGR

2014 2015 2016 2017 20182013

Benefits : 1.1%

IRA: 8.9%

IM Agency: 9.2%

Personal Trust: 0.5%

Other : -0.3%


Revenue

Retained

8.9% 4.3%3.5%8.7%10.4%

Revenue and Asset Retention, 2018 (Weighted Averages)

By total AUM; sample only includes firms that provided sales, retention, and revenue growth data

IM & Trust Sales Net of Attrition, as a Percentage of Prior-year Revenue (Weighted Averages)

IMT SALES AND RETENTION

GROWTH

Organic growth rates are even more modest than total. Sales and retention data suggest that organic growth is about half of

total. Talent need: improve growth and sales outcomes; retain business.

Notes: Growth rates are compound annual growth rates.

95.5%

93.3%

93.9%

93.6%

93.4%

92.1%

94.9%

94.0%

95.7%

95.4%AUM

Retained

11.7%10.3% 10.6%

7.2% 7.7%7.7%

5.6%4.0%

1.6% 2.2%


■ Revenue from Sales as a Percentage

of PY Revenue

■ Revenue from Sales Net of Attrition

as a Percentage of PY Revenue

2017–2018 IMT Revenue Growth Rates (Weighted Averages)


GROWTHPRIVATE BANKING

Formerly a revenue growth driver for many, private banking is also showing signs of slowing down. Talent need: improve growth

and sales outcomes.

Change in Loans Outstanding

Private banking

Total market*

Other Loans: 1.2%

Real Estate: 7.3%

Other Consumer: -3.8%

Consumer, Secured by

Real Estate: -16.2%

Mortgages: 8.8%39.0% 40.7% 42.1% 43.4%

6.7% 5.3% 4.3% 3.5%8.7% 8.3% 7.4% 6.7%

12.2% 12.9% 13.4% 13.1%

26.9% 26.6% 26.9% 27.5%

6.6% 6.2% 6.0% 5.9%

Non-real Estate: 5.9%

Comm

ercialConsum

er

2015 2016 2017 2018

4.9% 4.6%

4.8%

2.0%


NEW VALUE PROPOSITIONS

Top Three Reasons for Selecting an Advisor1

Top Three Reasons Clients are Satisfied with Their Advisor2

Respondents with advisors, by generation. Respondents were allowed to select

multiple criteria; percentages are the percent of total selections.

Notes: WISE 2019 HNW Study. 1Q: What were the most important factors when choosing your primary professional financial advisor? 2Q: What about your primary financial advisor's service quality are you

ADVICE AT THE FORE

Respondents with advisors

Competition and investment commoditization have reshaped value propositions, placing advice at the center. Talent need:

articulate and sell value; deliver on new service promises; deepen client relationships.

40.4% 37.5% 32.7%

16.9%13.0%

12.2%

16.9%22.8%

24.5%

25.8% 26.7% 30.6%

Millennials Generation X Baby Boomers

■ Brand

■ Price

■ All Other Reasons*■ Quality of Advice

■ Investment

Performance

71.9%65.6%

80.0%

68.4%61.5%

76.7%

57.9%61.5%

70.0%

■ Quality of Advice ■ Investment Performance ■ Responsiveness



Notes: 1

WISE 2018 Pricing Study; 2016 year-end data. 2Why do you not have a professional financial advisor for your personal finances? Includes everyone who doesn't have an advisor who would never

hire.

Respondents without advisors

Top Objections to Hiring an Advisor2

Personal trust, in basis points Investment management agency, in basis points

Predicted Incremental Return on Assets per Extra 10 Basis Points (BPs) in Stated Fees1

PRICINGRISK: DECLINING PRICING POWER

Talent need: sell value, don't compete on price; differentiate value

46.3%40.8% 36.8%

Prefer to Make My Own

Decisions

Do Not Need OneThey Are Too Expensive

3.94.6

Incremental Increase

in Returns (Predicted)

Incremental Increase

in Returns (Predicted)

Each incremental 10

BPs in stated fees is

associated with an

incremental 3.9 BPs

in returns on assets.

"We found that affluent

clients are not opposed

to paying slightly higher

fees as long as they believe their advisor is acting in their best interest and offering sound advice."

- Boston Consulting Group, 2019 Global


Notes: 1WISE Data. 2Fidelity; Fees are not tiered by account size; Fees are an average of robo advisor fee range. 3Betterment; Fees are not tiered by account size. 4Vanguard; Vanguard recently lowered its

minimum investment threshold for admiral shares to $3,000.

Growth requires the ability to articulate and sell a differentiated value proposition.

promises; deepen relationships.

Selected Fees (Basis Points)

PRICINGRISK: DECLINING PRICING POWER

Irrevocable Trust,

Accounts of $1M or

Less (Average Stated

Fee)1

IM Agency, Accounts

of $1M or Less

(Average Stated

Fee)1

Fidelity Robo

Advisor2

Betterment

Robo Advisor3

Vanguard 500

Index Fund

Admiral Shares4

Vanguard S&P

500 ETF4

125

110

3825

4 3

willing to engage with and pay for. What are we delivering that is worth the

premium we want to charge?


Notes: 1Boston Consulting Group, "2019 Global Wealth Report". 2American Banker, "Goldman Sachs Plans Wealth Product Aimed at Mass Affluent", April 15, 2019. BCG defines the mass affluent as clients

with between $250,000-$1M in personal wealth.

2018 2023, Estimated

MASS AFFLUENT

Mass Affluent Market Size, North America1

EMERGING GROWTH OPPORTUNITIES

Growth requires acquiring the next generation of clients, many of whom are only just beginning to accumulate wealth. Talent

need: technological competency, younger and more diverse advisors.

Wealth

Threshold

"Mass Affluent"

$8.4

Trillion

Assets

$11.5

Trillion

Assets

6.5%

Goldman Sachs estimates that the mass

affluent market currently accounts for

$9 trillion assets across more than

20 million US households.2

Only 35% of

wealth

managers

globally have a dedicated mass affluent team.1


A HARD CASE STUDY

Competitive and growth goals put new demands on talent: teams need to get better at sales, deliver new value propositions, and

get younger. A number of headwinds, however, will make these goals difficult.

NEW DEMANDS ON TALENT

Top 6 Skills for Financial Advisors1

Notes: 1. Fidelity, "The Impending Advisor Talent Crisis", 2018; advisors were asked, "Which of the following skills do you feel you have that have best served you as a financial advisor?"; participants include

464 financial advisors from a mix of banks, independent broker-dealers, insurance companies, RIAs, and national brokerage firms.

GET BETTER AT SALES

ARTICULATE AND DELIVER

NEW VALUE PROPOSITIONS

GET YOUNGER 32%

45%

62%

64%

66%

70%

Analytical/research/quantitative skills

Sales ability

Interpersonal skills/sociability

Problem-solving ability

Communication skills

Listening skills/empathy


LIMITED SPENDING

EXPENSES

Firms need to develop new skills with only limited resources: investment dollars are scarce and talent payback periods are

often lengthy.

Notes: Total bank sample includes every company that files a Consolidated Report of Conditions and Income (AKA a call report). Values only include firms who provided a non-zero answer for every year

between 2015 and 2018. Growth rates are compound annual growth rates. *CPI: Consumer Price Index, per Bureau of Labor Statistics.

Compensation and Benefits Expense

(All Firms: Wealth Management, IM & Trust, and Total Bank)

Indexed to 2015 average expenses

Non-Compensation Expense

(All Firms: Wealth Management, IM & Trust, and Total Bank)

Indexed to 2015 average expenses

IM & Trust: 4.2%

Wealth Management: 2.9%

Total Bank: 4.1%

Inflation: 2.0%*

100

105

110

115

120

2015 2016 2017 2018

IM & Trust: 1.7%

Wealth Management: 0.8%

Total Bank: 2.5% Inflation: 2.0%*

95

100

105

110

2015 2016 2017 2018


RETIREMENT EXODUS

Notes: 1Fidelity, "The Impending Advisor Talent Crisis", 2018. 2CFP Board; excludes participants that did not provide an age.

AN AGING WORKFORCE

Retirement Exodus

50%CFP Professionals by Age

2

The industry is facing a retirement exodus at the same time that desired skill sets are changing. Replacing veterans will be a

challenge, although some firms will use the occasion to affect cultural and behavioral changes.

Estimated percentage of financial advisors who will retire in the next 14 years.1

5.4%

21.7%

72.0%

20 29 30 39 40+


EXPECTED JOB GROWTH

Notes: *Bureau of Labor and Statistics. **BLS defines a personal financial advisor as someone that provides advice on investments, insurance, mortgages, college savings, estate planning, taxes, and

retirement to help individuals manage their finances. Examples include private bankers and wealth managers. 1WISE Data, includes net interest income;

2FFIEC Schedule RC-T data; banks and trust

companies with minimum AUM of $500M and minimum fiduciary revenue of $500K; includes personal and institutional; 3RIA Benchmarking Study from Charles Schwab, 2019; 4InvestmentNews Broker-

Dealer Data Center. Asset growth includes total assets. Data are from approximately 70 US broker-dealers with median 2018 revenue of $150 million and total assets of $20 billion; 5InvestmentNews,

"Schwab Report Shows Strong Growth of SEC-regulated Advisors", October 3, 2018.

COMPETITION FOR TALENT

Median Annual Growth Rates, Expected Personal Financial Advisor**

60%

A wave of retirements is likely to fuel demand for high-quality employees.

0.5%

0.7%

4.9%6.2%

9.4%

5.7%4.4% 4.3%

7.5% 7.3%

Wealth Management [1] Trust (All Segments) [2] RIA [3] Broker Dealer [4]

■ Revenue ■ Assets Under Management

• Entrepreneurial work environments• More flexible than larger firms• Financial upside

Between 2012-2017, the number of SEC-regulated RIAs grew 60%.5

Perceived RIA

Employment

Strengths

Personal Financial AdvisorsAll Occupations


By total AUM; compensation excludes benefits, weighted average

RISING COSTS

Compensation excludes benefits; weighted average

4.8%

3.4%2.5%

6.0%

4.7%


3.3%

Universe


THE MYTH OF THE UNICORN

Productivity gap between average performers and high performers,

by job complexity, percentage1

technology skills are uncommon and expensive.

Notes: 1McKinsey, "Attracting and Retaining the Right Talent", 2016.

7%

CAN'T RELY ON STARS

18%

50%

85%

125%

800%

Low complexity

Medium complexity

High complexity

Very high complexity of Fortune 500 executives agree that they successfully recruited highly talented people.1

of Fortune 500 executives agree that they successfully retain high performers.1


Notes: 1McKinsey, "Attracting and Retaining the Right Talent", 2016.

NEW WAYS OF THINKINGTHE PATH FORWARD

What You're Doing Now

Market trends and talent demands will require firms to challenge conventional norms.

In the First Person

▪ Hire more

▪ Adjust team structures and support roles

▪ Manage the client mix (segment)

▪ Attract seasoned professionals; steal opportunistically from competitors

▪ Changing how you pay

▪ Changing the roles of your people

▪ Changing what you do for clients

▪ Reallocating resources

▪ Changing your people

You have to concentrate your variable

comp. dollars in the hands of your best

performers. You have to. You cannot

lose them. [Comp.] is coming from the

lower performers. You have to be very

disciplined, you have to be ruthless.

On concentrating investment dollars

with top performers

Nobody wanted to take on the

portfolio managers because they

might leave. I said, "let 'em." If everyone thinks they can outsmart the CIO, then why do I have one at all?

On moving to mostly models and a

more generalist advisor role

sustainability is at stake and none of

our goals matter. Some advisors are not going to adapt, they are not anxious to learn. They own the client

power out of their hands.

On hiring younger workers into

centralized servicing roles

If you dislike change, you're going to dislike irrelevance even more.

- Eric Shinseki, retired US Army General and former US Secretary of Veterans Affairs


Notes: PWC, "Next Gen: A Global Generational Study", 2013; PWC, "Five Ways to Motivate and Inspire Employees for the Future of Work", 2018; Deloitte, "The Deloitte Global Millennial Survey", 2019; EY,

"The future of work is changing. Will your workforce be ready?", 2017; Forbes, "Understanding Baby Boomers at Work", 2016.

More Important to Older Workers

TALENTHIRING: WHAT EMPLOYEES WANT

More Important to Younger Workers

Firms also need to rethink ways to engage their workers.

Greater

Work/Life

Balance

Flexible

working

hours

Purpose

and

Fulfillment

Transparency from

Management

Team-oriented

Environment

Support and

Appreciation

Diversity and

Inclusion

Pay and

Development

Opportunities

Mentorship

Opportunities

Management

Quality


2 BRIDGING THE TALENT GAP

3.8% 5.8% 1.7% 6.0% -6.2%

Notes: *Sample is longitudinal; growth rates are compound annual growth rates.

IMT Revenue from Sales IMT Variable Salaries IMT Revenue from Sales

per FTE

IMT Variable Salaries

per FTE

IMT Revenue from Sales per

Dollar of Variable Salaries

Indexed; 2015 weighted average = 100

SALESRISING COST OF SALES

Evidence continues to suggest that the cost of sales is getting more expensive.

■ 2015 ■ 2018

2015–2018 Growth Rates*

100 100 100 100 100111.9

118.5

105.1

119.1

82.4


STRONGER SALES CULTURES

By total AUM, weighted average, excludes benefits


Slow and steady increases in variable compensation are consistent with a move towards stronger sales cultures. Evidence of a

cultural shift is strongest at fast-growing firms.

All firms, weighted average; excludes benefits

8.3% 3.2% 3.4% 1.4% 1.0%

9.5% 12.1%17.0%

34.8%27.9%

12.0% 13.3%18.8%

36.3%28.8%


■ 2015 ■ 2018

35.4%

36.1%

2015–2018 Growth Rates


All Firms, $10B or Less All FirmsLess than $1.5B in AUM $1.5B-$4B in AUM $4B-$10B in AUM

IMT Revenue from Sales, Percentage of Prior-year IMT Revenue (Medians)

HIGH SALES PERFORMERSRISING COST OF SALES

A sample of firms with strong sales results (bottom) illustrate a shift in favor of stronger sales cultures (following pages).

7.2%

9.5% 9.9% 9.4%7.6%

23.2%

11.2%

14.4%

16.7%15.2%

■ All Other Firms ■ Top Performers

Top Performers

• IM & Trust: Top quartile sales revenue performance in 2017 and 2018


officers, portfolio managers, relationship managers and dedicated sales staff.

HIGH SALES PERFORMERS

Revenue from Sales per Client-facing Employee (Medians)

Less than $1.5B in AUM $1.5B-$4B in AUM $4B-$10B in AUM All Firms, $10B or Less All Firms


Business Development Officers as a Percentage of Client-facing Employees (Medians)Sample excludes firms with no BDOs

RISING COST OF SALES

Firms with strong sales results (blue) have more sales per client-facing employee (top); a higher percentage of client-facing

employees are dedicated sales officers.

$31.5 $40.1$60.0

$43.3 $44.8$70.1 $68.9

$102.0

$70.1$86.5


10.0%13.3%

8.4% 10.2% 10.1%

24.9%

13.7%

22.5% 22.2%19.6%


Business Development Officer

Firms without BDOs are excluded

Less than $1.5B $1.5B-$4B $4B-$10B All Firms, $10B or Less All Firms

6.6%1.1% 5.2%1.4% 2.5% 4.6% 4.8%1.4%2.0%

0.0%


5.9% 0.0% 5.9%

Top sellers are staffing their sales roles at a higher rate than all other roles.


2.9%

Full Time Employee

$4B-$10B All Firms, $10B or Less All FirmsLess than $1.5B $1.5B-$4B

0.0% 5.5% 0.0% 0.0% 5.3% 9.3%

1.3% 1.4%2.1% 1.8%

-1.1%

4.3% 3.9%2.9%

3.6%4.4%


2015 2018 Growth Rates (Median)

1.6%3.1%

0.7%1.6% 1.5%

6.0% 5.6%

10.4%

7.5% 7.5%

2015 2018 Growth Rates (Median)



Variable Compensation Expense per Full-time Employee (Median)


Sales Revenue per Dollar of Compensation Expense (Median)


Top sellers pay considerably more in variable compensation per FTE, however they generally have equivalent or better sales

efficiency (sales revenue per dollar of variable compensation).

$9.6 $8.8

$14.5

$9.4 $10.2$12.6

$30.5$25.9

$23.6 $23.6

$1.7

$2.3

$1.7 $1.8 $1.7

$3.3

$1.4

$2.0 $2.0 $1.9



SALESWHAT THE TOP PERFORMERS DO

Bank A Universe

17.1% 0.3%

2017 20182016201520142013

Notes: Sales revenue: annualized first-year fee revenue from expansion and acquisition. Growth rates are compound annual growth rates.

100.0 121.8

173.6 149.5

194.1

220.5

100.0 92.3 93.1 87.9 99.9 101.7

■ Bank A ■ Universe

Background: Bank A has more than $5B in investment management and trust AUM and has outperformed industry sales benchmarks for at least five consecutive years.

Sales Model

▪ Business Development Officers (BDOs): Bank A's BDOs do not manage a book of business. Instead, they find and acquire new business before handing off new clients to a relationship manager.

▪ Relationship Managers (RMs): Bank A removed all formal sales goals from its RM's responsibilities. RMs can focus solely on managing their book of business, however, they can still earn incentives for sales activities.

Unlike most firms, Bank A has been able to increase sales production consistently over time.


BANK A: MOTIVATION AND HIRING PROFILE

Motivation for BDO-led Model

SALES

Typical BDO Profile

Hiring Process

Rigorous screening for non-coachables.

A third-party vendor conducts a personality assessment and tests for 60+ attributes. Ten attributes--mostly intrinsic, non-coachable characteristics such as perseverance--are non-negotiables, regardless of other qualifications.

Technical skills are secondary. BDOs have a diverse range of professional designations but they are not a major consideration.

Age: Typically late 30s to early 40s

Prior experience: Have often worked in other asset and wealth management businesses (e.g., qualified plan sales)

Professional goals: Highly motivated to earn a high income; motivated by at-risk pay

#2

▪ Many industry professionals don't like sales.

"Our [relationship managers] are very capable, buthaving sales goals and obligations to grow theirbooks causes anxiety."

▪ Doing both sales and service causes one or the

other to suffer. Sales results often suffer whenadvisors are busy serving existing clients.

▪ People who can "do both" are hard to find.

Finding people who are good at one or the other iscomparatively easier.

▪ True collaboration is hard when everyone has a

sales goal. In Bank A's incentive model,Relationship Managers can earn incentives for sales,but have no formal goal.


SALESBANK A: TEAM SALES THROUGH ROLE SPECIALIZATION AND INCENTIVES

Bank A Variable Compensation for Business Development Officers

Base Salary

$100+30%

of Each Sale

+40%of Each Sale

+50%of Each Sale

Tier 3

Tier 2

Tier 1Employee must achieve

30% of their sales goal to

receive Tier 1 variable

compensation.

Variable Compensation

▪ Incentives for BDOs: Bank A pays their sales staff an average base salary with the potential to earn significant variablecompensation. The firm wants employees motivated to earn their salary through sales, rather than feeling comfortablecourtesy of a high base. On average, a sales specialist receives a 34% payout per dollar of sales revenue. Bank A paysno trailer; sales officers are paid out in Year 1.

▪ Incentives for Relationship Managers: Bank A rewards non-sales staff for sales "assists" (e.g., referrals or accountexpansion). These "assists" account for an average 16% payout per dollar of sales.


SALES

Distribution of first-year sales revenue Payout by employee

BANK A: TEAM SALES THROUGH ROLE SPECIALIZATION AND INCENTIVES

Bank A Variable Compensation Payout, Total and By Employee Type Risk Management

68.0%: Share offirst- year sales

revenue paid in variable

compensation

32.0%: Firm's share of first-year sales

revenue

32.0% Net Revenue

Made From First

Year of Organic

13.6%: Other Staff

19.7%: Service Teams

34.0%: Sales Staff

We put out a net to catch good sales people. Who cares how much they cost? We trade 1 year of revenue for 10 years of business.

- Bank A Executive

Overhead Cost Risk. Underperforming BDOs add expense, not revenue. Although turnover is low, underperformers are managed out of the firm.

Handoff Risk. A two-year clawback motivates BDOs to share detailed client information with servicing teams (e.g., via CRM). Incentives reward collaboration between sales and servicing teams: BDOs typically involve RMs early in the sales process; RMs are rewarded for sales assists.


SALESWHAT THE TOP PERFORMERS DO

Desired Sales Skills

Goal: Reduce Search Costs ("No Unicorns")

▪ Establish a needs hierarchy

▪ Design incentives that align with top needs

▪ Build processes and provide coaching thatreinforce desired behaviors

Background: Bank B is a private bank with more than $30 billion in total assets, loans, and deposits.

Situation: Bank B seeks to attract and retain high quality sales people by offering strong sales coaching and leadership, as well as high earnings potential.

Unicorn

Priorities for an RIA

Priorities for Bank B

Prospect

Good

Discovery

Process

Secure

Meetings Close ServeDeepen

RelationshipGet

Referrals


SALESBANK B: TEAM STRUCTURE

Wealth Advisors and Client Experience Managers Regional Managers

"Office A" Desired attributes

Wealth Advisor (WA)

Spends significant portion of time on business development. Has both sales and service goals (see next page)

Client Experience Manager (CEM)

▪ A client service specialist who supports the Wealth Advisor

▪ Typically a CFP with a strong financial planning skillset

▪ Responsible for ensuring that large relationships (by revenue)receive superlative service (e.g., $20K to $25K+)

▪ Oversees 100-150 clients each

▪ No sales goal

1. Can attract and retain top talent

2. Understands the client experience: "They really need toknow what matters. Do they know what 'good' looks like?"

3. Effective sales management and coaching. Bank B has adisciplined, "rigorous" sales process that includes weeklycoaching and quarterly business reviews. "Managers needto sell the process and be a leader in the field."

4. Executes sales plan, develops internal and external

referral networks

Key Insight

Skilled servicing support personnel gives Wealth Advisors time to focus on sales without diminishing the client service experience.

Key Insight

In addition to being a top driver of employee engagement, goodsales coaching (supported by a well-defined sales process) make it easier for Bank B to meet its hiring needs and for "nonexperts" to succeed.

Employees have a lot of choice, we are competing to attract them. You have to get really good sales leaders first. Then put in a good

- Bank B Executive

WA

CEM CEM

WA

WA


HIRINGBANK B: COMPENSATE THE RIGHT BEHAVIORS

Striking a Balance

Variable Compensation for Top Producers

Distribution of Financial Compensation

"Hunter""Caretaker"

1X

2X

Base Variable Total

$500K

Let's say base pay is $150K. A relationship manager in the top third should double that. A relationship manager in the top 10% should triple that or more.

- Bank B Executive

Two-tier, Uncapped Incentive CompensationHow it works

Advisor produces: $X in revenue (banking, deposits, insurance investments, etc.)

Maximum total incentive: $Y, determined by grid

Tier 1: Automatic: 50% of maximum total incentive

Tier 2: Goals-based: up to 50% of the remaining maximum total incentive based on five goals:

▪ Outbound referrals (e.g., to B/D, commercial bank, etc.)

▪ Net flows

▪ Compliance

▪ Client utilization of digital offering

▪ Good teammate (subjective)

Total

Compensation

Top Producers

Everyone

Else

The incentives heavily reward the top performers. We cannot lose them. Their compensation is coming from the lower performers. You have to be ruthless and disciplined. You cannot peanut butter!

- Bank B Executive


Business Development

Officers

Trust Officers Portfolio Managers Other Client-facing

Employees*

Notes: *Includes generalist relationship managers. All growth rates are compound annual growth rates.

NEW SERVICE APPROACHESINDUSTRY TRENDS

Investment management & trust, all firms

2.5%

-2.5%

0.1%

3.0%


NEW SERVICE APPROACHESSTANDARD ASSET ALLOCATION MODELS

Percent of Assets Invested in a

Standard Asset Allocation Model

80-100% 25.8% 20.0% 15.4%

From Investment to Advice

12.2% 19.4% 6.5% 6.7% 15.4%

38.5%

11.1% 9.7% 9.7%

20-40%

Less than 20% 13.3% 15.4%

21.1% 6.5% 25.8% 26.7%

60-80%

25.6% 32.3%

19.4% 29.0% 26.7% 15.4%

Notes: Small Firms: Less than $1B in AUM; Midsize Firms: $1B-$5B in AUM; Large Firms: $5B-$10B in AUM, Very Large Firms: $10B+ in AUM. N/A: Not applicable or insufficient data. *At firms that offer; WISE

2018 Pricing Study.

None

Standard Asset Allocation, By Firm Size*

All Firms Small Midsize Large Very Large

23.3%

0.0%6.7% 12.9% 3.2% 6.7%

40-60%

Enhancing the Service

Experience with a "Big Shift" in

Resources

Premise: standardization of the investment offer (e.g., greater use of models) is unlikely to negatively impact client satisfaction, yields risk management and service consistency benefits, and frees resources for other pressing needs. WISE research from 2018 estimates that about 55% of client assets were invested in model portfolios.


NEW SERVICE APPROACHESBANK C: THE PROBLEM

A Dramatic Migration

Service Quality

Inferior Superior

BEFORE

▪ Relationship managers allowed significant discretion in managing client assets

▪ Service experience suffers▪ Narrower relationships; "Me,

not we"

Background: Bank C is a private bank with between $10B and $15B in total assets, loans and deposits.

Situation: The firm observed a significant disconnect between the best thinking of the firm's CIO and the way Relationship Managers in the field managed client assets.

Action: Over a period of four years, move 90% of client assets to standard asset allocation models and redesign the client service experience.

Use

of M

odel

s

Low

Hi

gh

AFTER

▪ Relationship managers allowed minimal discretion in in managing client assets

▪ Emphasis on client goals, relationship breadth; "We, not me"


NEW SERVICE APPROACHESBANK C: HOW IT WORKS

Component 1: Centralized Investment Team

Component 2: Junior Portfolio Manager

▪ Existing Accounts. Put existing accounts "on the rails" (move to asset allocation modelsrebalance, determine capital gains, etc.)

▪ New Accounts. Onboard new accounts

▪ Routine Servicing. E.g., trade accounts based on guidelines, handle account liquidations

▪ Customization. More intensive customization (e.g., tax harvesting, customized positions, attribution analysis) is managed centrally; limited customization remains in the field

Junior portfolio managers, centralized in the firm's headquarters, manage small accounts, typically less than $2M.

Investment Task Migration

From field to central, e.g.:

▪ Trades▪ Rebalancing▪ Harvesting gains▪ Raising cash▪ Determining

appropriateness

Chief Investment Officer

Centralized

Investment Team

Field Relationship Managers


Expansion-driven Growth

Bank C Revenue Growth Wealth Management Industry

2016 2018 2016 2018

Productivity Benefits (Bank D)

NEW SERVICE APPROACHESBANK C: OUTCOMES AND CLIENT EXPERIENCE

▪ New RM profile. Team- versus individual-orientation. "You don't have to be 'the man'. You are leveraging a group, you're the voice for the team and the firm."

▪ Emphasis on client education. RMs need to know how to explain the firm's investment strategies and how they align with the client goals.

▪ New vocabulary. Client reporting and meetings shift from market-orientation to personal goals-orientation. "We had

to shift our entire way of talking ... the talk now is about

the end game, about progress towards your end goals."

100 100

117.8

110.1

Success metrics have changed. Success two years ago [for a relationship manager], it was doing $400K in new business. Success today is doing the same $400K in new business but across a broader range of services, including deposit products, credit, insurance, and planning.

- Bank C Executive

Bank D, a midsize private bank, has been through a similar process and estimates that it has realized a 30% increase in

productivity in terms of account workloads for its client-facing advisors.

▪ Limited customization. Relationship managers are permitted only limited portfolio customization opportunities (e.g., picking ABC ETF/fund over XYZ ETF/fund within predetermined asset class rosters).

▪ Client service playbook. New client service experience guidelines define service standards in detail, e.g., from pre-call planning to post-call debriefs.

▪ Incentives for relationship breadth. (Quote box, right)


NEW SERVICE APPROACHESBANK C AND BANK D: CHANGE MANAGEMENT STRATEGIES

Affect Change Gradually

Bank C: Doing What's Right from the Top Down Bank D: Affecting Gradual Change Over Time

Show Them Why

Encourage

Reinvest

Recognize Practical ConstraintsMove Forward with Confidence

Paramount communication themes:

▪ "What we are doing is better for our clients"; "Ourclients deserve our best thinking."

▪ "We are going to give [the field] more time back in theirdays to serve clients."

▪ Regularly remind/reinforce the benefits of new serviceapproaches

▪ Provide training opportunities twice annually. Newemployees go no longer than 180 days without a formaleducation in the firm's service model

▪ Hire employees to fit the new team model

▪ Slowly move client assets into standard portfolios overa period of five years.

▪ Start with small accounts (<$1M)

▪ Do not replace PMs that leave or retire. Split their bookamong existing PMs and the centralized team

▪ Permit client-driven customization within a certainrange. "Clients are in models with constraints. It is notone-size-fits-all."

▪ Members of the 'centralized' investment team arephysically located across the footprint to help developrelationships and secure buy-in with "old school" PMs.

Nobody wanted to take on the Portfolio Managers because they might leave. I said, 'let 'em'. If everyone thinks they can outsmart the CIO, then why do I have one at all?

- Bank C Executive

I have PMs with substantive assets in custom portfolios. They've been working the same way for 30 years. If I said they couldn't trade the portfolio, they would quit immediately. If you lose employees, you lose clients.

- Bank D Executive


Baby Boomer 27.6% 0.0% 72.4%

Notes: WISE 2019 HNW Study; 1What is your preferred age for your primary financial advisor? 2

Millennial 29.6% 0.0% 70.4%

Generation X 19.7% 2.1% 78.2%

------------------ Male ------------------

Generation X 9.1% 9.1% 81.8%

Prefer Same Gender Prefer Opposite No Preference

Baby Boomer 8.3% 12.5% 79.2%

Prefer Same Gender Prefer Opposite No Preference

Millennial 18.3% 16.7% 65.0%

By generation; blue = prefer older, green = prefer younger,

gray = no preference or same ageBy gender and generation, total sample

------------------ Female ------------------

Advisor Age Preference1

Advisor Gender Preference

A CHANGING PROFILEClients don't have strong preferences for age and gender, although some do have preferences, suggesting a need for diversity.

3.4% 1.5%

24.5%8.0% 10.8%

15.1%

10.2%24.3%

13.2%34.1%

18.1%

3.8%13.6%

7.9% 1.9%

30.7%37.4% 41.5%


■ No Preference

■ More Than 10 Years Older

■ 5 10 Years Older

■ Same Age

■ 5 10 Years Younger

■ More Than 10 Years Younger


Notes: 1Credit Suisse, "The CS Gender 3000: The Changing Face of Companies", 2019.

2McKinsey, "Diversity Matters", 2015; McKinsey examined proprietary data sets for 366 public companies across a

range of industries in Canada, Latin America, the United Kingdom, and the United States.

Firms with More than 20% of the

Executive Team Who are Women

Firms with Less than 15% of the

Executive Team Who are Women

A CHANGING PROFILEHIRING: THE NEW ADVISOR PROFILE, DIVERSITY

Likelihood of Earning Returns Above Industry Median2

Observation: the case for a more diverse workforce is strong. How to implement a diversity strategy is the challenge.

Executive Team Gender Diversity Matters1

10-year share-price performance

+15%

Top 25% on Gender

Diversity

Top 25% on Racial

and Ethnic Diversity

Industry Likelihood

+35%

4.2%

8.0%


II. Get younger

23% 50%

I. More sustainable labor expense

(Compensation and benefits as a percentage of revenues)

of the employees

are under 40

of the employees

will be 65+ in

five years

Motivations Key Outcomes

A CHANGING PROFILECASE STUDY: DEVELOPING THE NEXT GENERATION ADVISOR WORKFORCE

Background: Trust Company E is a multi-family office with more than $5B in assets under administration.

Overview: Improve efficiency and the client service experience by hiring and training a new generation of younger workers.

70%60%

Before After

Before After

▪ Manage sustainability risks: Prior to its "youth movement," Trust Company E spent more than 70% of its revenues on compensation and benefits, a level that the CEO deemed unsustainable.

▪ Prepare for a wave of retirements: The firm's employees, including many of its senior/key personnel, were nearing retirement age.

▪ Improve technology adoption: Integrating new/innovative technologies is integral to the firm's strategic plan, and necessitates workers who are more comfortable using technology.

▪ Opportunistically redesign service processes:

Create efficiencies in service delivery through greater centralization and by giving younger workers authority to help design the firm's service fulfillment processes.

+


A CHANGING PROFILEHOW IT WORKS: CAREER PATH AND BENEFITS

Inconsistent; depends

on manager

Firm mandates 30-60-90 day

onboarding plans for new

employees, establishes a

mentorship program

Career Development Program

Old Model New Model

Strategic Planning Committee

comprises multiple generations

and is more diverse; Middle Office

employees are given real authority

to help improve firm's service

processes

Firm culture defined by

senior generation

Join a small client-facing team

(service delivery more local)

Join larger, centralized middle

office teams (service delivery more

centralized)

Younger workers want to know

"what's next"?; managers

afraid to ask

Employees can "go deep" in

specialist roles or transition to

client-facing teams

Staffing

Coaching

Empower

Old Hiring Model

Younger employees typically join a client-facing team, and their onboarding and coaching experience was highly varied and dependent upon the skills of the team lead.

New Hiring Model

Trust Company E built a middle office that supports investments, tax, planning, accounting and reporting, family education, business transitions, etc. New employees typically start in a centralized job function.

Benefits

▪ More consistent onboarding and coachingenvironment

▪ Exposure to multiple job functions; introduced toclients in a support/specialist capacity

▪ Multiple career paths: Advance as a centralizedspecialist/expert or transition to a client-facing team

Implementation Tip: Coaching and career-pathing, not

compensation

Trust Company E pays only "market" compensation but is able to compete for top talent by investing heavily in non-compensation benefits. Coaching and career-

pathing are paramount.

A New Profile

A typical younger worker has an MBA from a tier-one university. Over time, Trust Company E wants "really smart generalists. We don't need a pure CFA

approach anymore. They are too tactical, not as client-friendly." Candidates must pass a rigorous, multi-level interview process that probes for specific types of behaviors and situation handling skills.

CareerPath


A CHANGING PROFILECASE STUDY: MARKETING THE APPEAL OF 'WEALTH MANAGEMENT' TO YOUNGER WORKERS

What Makes Wealth Management a

Good Place to Work?

Who We Are Our Services Our People

Ashley

Senior Financial Accountant

Joshua

Trust Administrator

Q. Share about your five years with NH.

Q. You're from Seattle. What's unique about the city?

Q. Favorite cuisine?

Q. Why trust administration?

Q. Next travel destination?

Q. One thing to change about your work?

Community: "We try to engage younger workers around the notion that our communities and our country need family businesses to thrive. They are community employers. If these families fail, our jobs and our communities suffer."

Culture: The firm's Website and other marketing collateral prominently feature profiles of younger workers--their backgrounds, positions, interests (right).

From the boardroom (converted to a communal/social area) to wellness programs and nutrition counseling, non-compensation benefits are designed to appeal to the firm's younger workers.

Implementation Tips

Put Recruiting in the Hands of the Next Generation

Trust Company E's Human Resources Director is 34 years old and has prior experience working in asset management.

Move Where the Talent Pools are Deepest

Trust Company E is planning to expand its physical presence in markets where there are deep pools of younger workers.

A Matter of Perceptions

"My daughter's friend told me that she would never consider working in wealth management. She said that she wants to be a counselor some day." - Industry Trainer

The Get for the Give

Trust Company E has overhauled its culture and many of its talent management practices to appeal to younger workers, but it is realizing significant efficiency

gains. "These younger graduates, they have an MBA and are looking for opportunities to make huge contributions. We give them latitude to shape our services, and we have seen some major improvements in our middle office

functions."


Peers:Total AUM|2625000000|8625000000||firm_alt|None|None

Helping you make WISE decisions

www.wisegateway.com

AUTHORS

David Lincoln, [email protected](202) 997-5962

Jack Miossi, Senior Research [email protected]

CONTRIBUTORS

Jeff TessinStatistical Consultant

Mike KostoffWISE

Sunghoon ParkWISE

BRIDGING THE TALENT GAP...Notes: Total bank sample includes every company that files a Consolidated...

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