Room to Grow: How Community Banks Can Find Untapped Potential in Wealth Management

Community banks know their customers. They understand the farmer financing a new livestock purchase. The retiree establishing a trust for her children and grandchildren. The baker seeking a loan to upgrade his kitchen. Community banks build trusted relationships with local residents and business owners alike, and in doing so become vital members of the communities they serve.

The unique roles they play, however, have not isolated these esteemed institutions from national trends. Economic volatility, regulatory pressures, technological challenges, and intense competition posed by other institutions, including credit unions and national and regional banks, is making it harder for community banks to achieve sustainable growth.

Yet amid these challenging circumstances, there’s also an incredible growth opportunity available to community banks: leveraging their existing strengths to offer holistic advisory services and expand deeper into the wealth management business.

In LPL Financial’s 2024 Institution Benchmark Report, we surveyed more than 400 community banks on the LPL platform and found that advisory services contributed outsized revenue despite representing a minority of assets. In aggregate, community banks’ advisory assets under management made up just over a third of the banks’ total AUM, while contributing to nearly half of revenue.

Growing their advisory and wealth management services could provide even higher recurring revenue for community banks, helping buffet the headwinds of the current financial landscape. Achieving this growth, however, requires careful planning and a strategic approach. Here are a few opportunities and factors to consider.

Creating New Value for Business Owners

Historically, commercial lending has been and continues to be a major area of focus for community banks. Community bankers often have a high degree of insight and knowledge about local industries, so they can provide smart underwriting and tailored service to business customers.

But relationships with business owners don’t have to start and stop at lending. Wealth management offers an opportunity to provide a complete value proposition, deepening relationships while growing sustainable revenue. For affluent business owners, advisors can offer investment and wealth planning guidance tailored for high-net worth individuals. Business owners thinking about the next generation can get help from advisors on estate planning and business succession guidance. And business owners concerned with employee benefits can take advantage of community bank retirement plan offerings such as 401(k)s.

Since community banks are already starting from a foundation of trust, working with local business owners they’ve often served for years, they have a competitive advantage over larger banks in offering such services.

Revamping Advisor Talent Pipelines

Providing comprehensive financial guidance to both business and personal banking clients requires the right advisor talent. In the current environment, however, attaining such talent is especially challenging: The market for financial advisors is increasingly competitive and a shortage looms. According to an analysis of LPL clients in our Institution Benchmark Report, the number of producing advisors declined 12% year-over-year in 2024. As more and more advisors retire, fewer new ones are stepping in to take their places, which could lead to a projected shortfall of over 100,000 advisors in the U.S. in the next few years.*

But even as the aggregate number of advisors declines, community banks can take proactive steps to retain their existing advisors and also grow their ranks. Investing in training and talent pipelines, bolstering advisor recruitment, building scalable support structures and engaging in smart succession planning can help community banks weather the talent crunch and emerge stronger in its wake.

Finding Support for Technology Solutions

The right innovation can create seamless, empowering experiences across the board. Advisors can use analytics and tech-powered tools to enhance engagement with and provide holistic, customized solutions to their customers. Customers can access convenient digital platforms and faster service. And community banks can benefit from automating middle- and back-office functions, saving their staff precious time and bandwidth.

But maintaining an up-to-date technology stack is an intimidating exercise for smaller institutions. Many community banks struggle to keep pace with the rapid evolution of financial services technology, to manage the inherent complexity in integrating new and legacy systems, and to afford the cost of it all.

The good news is that community banks don’t have to do it alone. Having the right strategic alliance can help community banks incorporate and leverage advanced technology to elevate service for clients, enhance support for advisors and make doing business easier for everyone.

Partnering to Embrace Opportunities for Growth

As community banks navigate the changing financial services landscape, embracing the right solutions can help them conquer today’s challenges and expand their business. Investing in wealth management and integrated financial guidance can reinforce and grow customer relationships while cultivating advisor talent. Community banks can reach these objectives by working with the right partner.

LPL provides community banks the technology, tools and expertise they need to thrive in a volatile, competitive environment. We invest approximately $500 million a year into our integrated technology platform so that institutions, advisors and customers have the most advanced tools right at their fingertips. We help community banks identify and recruit advisors, while supporting a range of investment offerings including retirement plans and high-net-worth solutions to help community banks offer in-demand services that can take their customer relationships to the next level.

LPL collaborates with community banks to take the friction out of their businesses so they can grow their wealth programs, all while solidifying the community ties that make them special. Combining their traditional strengths with new opportunities can help community banks chart a new, promising path forward, and we’re excited to help them do it.