How Institutions Can Think About a Wealth Business’s Value

IN THIS ARTICLE

• Why Wealth Business Value Matters
• Evaluating Wealth Business Value
• Build vs. Outsource Considerations
• Deciding for the Long Term
• What Moves the Needle
  
  

As institutions embark on the journey of growing their wealth businesses, they run a major risk: Missing the forest for the trees.

A wealth business is a strategic asset, and like any asset, it needs to be actively managed for long-term value. But too often, institution leaders get lost in the operational details of a wealth business structure while neglecting big-picture, strategic decisions — namely, whether key elements of the business should be built or outsourced.

The right choices can result in deeper client relationships, greater talent retention and sustainable success. Those are the factors that determine a wealth business’s value; understanding this connection can inform the structural decisions that best position the business for growth.

Why the Value of Your Wealth Business Matters Now

As a strategic asset, wealth is no longer a peripheral line of business for institutions. It’s under increasing C-suite and board scrutiny, and their concerns are multi-fold: Competitive pressure from larger banks and fintechs, deposit retention, aging client bases, and the push to deepen relationships all make the health of the wealth business front-of-mind for executives and directors.

When wealth businesses fail to live up to their potential, consequences compound:

• Talent recruitment and retention lag, as next-generation advisors look for modern support.
• Customer loyalty declines as more turn to institutions that can take a holistic approach to financial advice.
• Questions arise from board members as to why wealth is consuming capital but producing inconsistent returns.

With the right investment, institutions can avoid these consequences and, instead, turn their wealth businesses into a critical driver of client retention and growth.

How Institutions Should Think About Their Wealth Business’s Value

Before making structural decisions, institutions should consider how investors, potential acquirers, and boards will assess the value of the wealth business.

For institutional wealth businesses, three categories of metrics are critical to determining value:

Net New Asset Growth

Net new asset growth is a key metric for wealth business value because it represents the business’ ability to acquire new clients or members while increasing wallet share from existing clients or members. It can also reflect key business strengths fundamental to securing net new assets: talented and productive advisors, consistent processes and productive internal and external partnerships.

Sustainability

Short-term growth is often a product of favorable, if fleeting, market conditions. Continuous long-term growth, however, is a signal of a solid foundation and an enduring model for success. High rates of advisor retention, comprehensive succession planning, strong business continuity measures, and consistent regulatory compliance all contribute to a sustainable wealth management business. Business strategy is also a critical factor, and focusing on fee-based advisory services, rather than more transactional brokerage services, can help drive sustainable growth.

Strategic Fit

The success of a wealth business can hinge on how well it aligns with or compliments the institution’s broader mission. Can the business augment the value proposition that the institution offers to its customer or member base? Can it deepen existing relationships with customers and members? Can it integrate with core businesses such as banking, insurance and lending? Can it offer tailored services to meet the needs of key segments? A strong strategic fit indicates that a wealth business is poised to become an engine of growth for the institution.

Considerations for the Build vs. Outsource Decision

The build vs. outsource decision plays a pivotal role in how a wealth business is ultimately valued. Maintaining wealth functions internally instead of outsourcing them can impact key value drivers in ways that institution leaders may not expect.

Operational and compliance burden: Wealth businesses typically require complex systems and technologies for regulatory compliance and operational continuity. When institutions choose to take on these burdens rather than outsource them, it’s important to weigh the costs of leadership attention and capital—resources that could be dedicated to growth instead.

Cost structure: Establishing proprietary infrastructure and hiring or training teams to support it can seem like an efficient move. However, the true total costs of building and maintaining infrastructure can add up quickly and reach levels that degrade return on investment.

Flexibility and control: Though some assume that outsourcing requires relinquishing control of a program, that’s often not the case. With the right provider, an institution maintains considerably more control over the business than anticipated, while gaining more flexibility to scale and seize new opportunities.

Perceived conflicts of interest: There’s a perception that the commercial interests of third-party platform providers could shape what institution advisors offer clients. However, what typically determines the presence of conflicts is the quality of the program itself. A poorly governed program can be vulnerable to conflicts even if it’s proprietary, while a well-run outsourced program can be conflict-free.

Making a Decision That Serves the Long Term

Which path — build or outsource — will serve an institution best? Asking these questions can help leaders arrive at answer:

• Do you have the capital, talent and time to build and maintain the infrastructure necessary to support and scale your wealth business?
• Do you have the technology and resources to develop, hire and retain talented advisors?
• Can you afford to devote internal resources to operational continuity and compliance needs without compromising on client or member service?
• Can you ensure that your wealth business fits strategically with your institution’s broader goals?

If the answer to any of these questions is “no,” then working with a wealth services provider may be a smarter alternative than building a wealth management business alone.

What Actually Moves the Needle

“The right wealth provider frees institutions to focus on treating their wealth businesses like the strategic assets that they are.”

Institutions often find that outsourcing operational complexity empowers them to devote more resources to key growth drivers such as advisor productivity and retention; client and member experience, retention and wallet share expansion; integration with the broader institution; and leadership clarity and governance.

High‑value wealth businesses are built by leaders who are able to:

• Spend time on advisor growth, not platform oversight
• Focus on client experience, not system maintenance
• Govern outcomes, not operations

The right wealth provider can manage a wealth business’s infrastructure, technology, compliance and other operational needs, freeing institutions to focus on treating their wealth businesses like the strategic assets that they are.

With 30 years’ experience in wealth management and the industry's well-regarded wealth management platform, LPL offers the support and services institutions need to pursue long-term value from their wealth businesses. By working with LPL, institution leaders can find the big picture becomes much clearer, making it easier to forge a path forward for sustainable, scalable growth.