Big banks want your big bucks, but you have other options

October 21, 2011

Big banks just don’t want to sweat the small stuff.

Despite receiving some $4.7 trillion in taxpayer bailout funds, the largest of them are moving more towards wealthy customers with assets to invest and away from low-margin checking accounts. That doesn’t mean you should invest with them, though.

The banks side of things is that that want well-heeled wealth management or brokerage clients, not people who are writing small checks to pay bills. For instance, Bank of America, which recently announced a $5-a-month debit-card fee, said about two weeks later that it was planning to nearly double the number of “Financial Solutions Advisors” for its mass affluent clients.

The growing array of banking fees — common at most big banks now — are a red herring for bankers’ larger agenda of generating more income from advisory and brokerage accounts, as brokerage accounts have the potential to generate hefty commissions and advisory fees.

I suspect that BoA, which recently fell to the second-largest bank by assets, would rather get more customers into its Merrill Edge account. BoA is offering $100 plus up to 30 commission-free online trades to sign up. Just deposit at least $10,000 in cash or securities in their Merrill cash management account first.

What if you have some serious retirement or discretionary money to invest? Are big banks giving you more bang for your investment buck? As you shop for new investments, keep in mind that big banks may continue to raise fees and charge high commissions.

Here are some key questions to ask your bankers if they want your business:

What’s their commission schedule for securities trades?
If you’re an active investor, this is an essential question. Order execution is a commodity business now. Many online deep-discounters range from free trades (for introductory offers) to as low as $2.50 per transaction.

Do they offer comprehensive financial planning?
Many, if not most, of bank-lobby investment advisers are commissioned representatives who are paid when they sell products like mutual funds and annuities. Ask them if they are certified financial planners. If you need extensive retirement, tax, estate or portfolio planning, your local bank may not be the right place to go. You may need to ask for a “private” banker.

What products do they recommend?
While there’s certainly no sin in earning a commission, look at the overall cost of the products. Do they earn a commission plus management fees? Do they recommend their “house” brand of mutual funds? There are many cheaper, more diversified alternatives such as the DFA group of funds, which are sold through investment advisers and financial planners.

Do they push products without detailed questions about your financial goals?
This is a red flag that they want to earn a commission and not provide meaningful advice.

Are they fiduciaries?
This is a specific legal term than means they must put your interests above that of their employer. They can be sued for giving you bad advice. But if they’re solely registered as securities brokers, they fall under looser “suitability rules,” which means you would likely have to submit to industry-run arbitration and may not have access to the courts in the event of a dispute.

Do they push annuities?
You can buy fixed-rate and variable annuities direct from issuers and save on commissions. A bank is not a good place to buy an annuity.

I know the inherent appeal of a bricks-and-mortar bank branch that sits comfortably in your neighborhood or in the center of a downtown business district. They are hard to resist. We’re still drawn to the idea of the friendly local banker.  George Bailey lives in our cultural imagination.

Yet, when it comes to investing, you may be better served by seeking the services of a registered investment adviser, financial planner, certified public accountant or chartered financial analyst. They may offer more sophisticated and customized service and could save you a lot of money by avoiding high-priced, low-performing products.

5 comments

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They got a bail-out, then gave that money as bonuses to their account-trading empoloyee’s. Now they want more of your money…. Where will these bankers be when the unemployment rate reaches 25%, and no one has any money left…..

Posted by edgyinchina | Report as abusive

If you’re not providing the bank with substantial assets, they truly owe you nothing. Likewise, you owe them nothing. Best way to go is to your local credit union. All the benefits and fewer drawbacks. Big money can go there, also :}

Posted by Poquitoloco | Report as abusive

I moved my money from a local branch of a Wall Street bank to a credit union and I’m delighted with my new banking situation.

Credit union employees are modestly paid, even the executives. They don’t have to generate billions of dollars in profit. They have modest buildings, modest offices, no multi-million dollar bonuses, and they don’t own any politicians.

Owning politicians costs a lot of money.

Posted by breezinthru | Report as abusive

My bank investing experiences were frustrating and I often returned home with something I hadn’t wanted. Persuaded towards their choice. In contrast I have always found credit union staff to be friendly, and up front with my interests in mind.

They exist solely to serve their members and not to pay high dividends to share holders. The profits are returned to members, offering higher deposit rates and lower rates on loans.

My credit union is large enough to provide full banking services for me. There are half a dozen credit unions within a few blocks of home, two that belong to my branch. They are popular here in BC where accounts are insured for the entire amount.

Posted by GrampaKen | Report as abusive

I’m sick of this economy and how much money I’m NOT making. I started taking online paid surveys in order to make a little bit of extra cash. I made about $100 last week by just answering some questions. It’s not a lot, but it’s nice to have some wiggle room

http://yourtoppaidsurveys.weebly.com/

^Check out that link for more information.

Posted by gwinnie | Report as abusive