Future of Investing

Why Nationwide is ditching retail banking

  • Nationwide shut down its retail banking operation to focus on its historical core business areas retirement mutual funds, annuities and other "emerging businesses for growth"
  • The fee-only financial adviser community is a growing area of outreach for Nationwide
Why Nationwide is ditching retail banking

Nationwide is shutting down its retail bank, returning to its historical core business lines including insurance and retirement; part of this plan is to invest more resources in reaching the fee-only adviser community.

The move to wind down banking operations was a strategic decision to focus on trust operations that support  retirement plans, a company spokesman said. Gaining scale and becoming competitive in retail banking would have required a “significant investment.”

Reaching the fee-only financial adviser community is an opportunity for Nationwide and other large insurers to adapt to changing revenue models in the financial advisory industry. The market for fee-only advisers — whose compensation is based on fees for services not based on product commissions — is growing and catching the attention of insurers. According to recent research, advisers’ fee-based revenue represented 54 percent of their production last year — up from 49 percent the previous year. Allianz and Prudential launched fee-only annuity products (tax-deferred investments payable at retirement) in recent years. Nationwide last year acquired Jefferson National, a company whose primary business line was to support fee-only advisers with annuity products.

“They’re looking at the way deferred annuities would be implemented in the life of an individual, and the fact that they have products tailored to the fee-only channel is emblematic of how the industry is shifting,” said Philadelphia-based financial adviser Justin Harvey. “But Nationwide is just supplying the product — it’s like they’re the department store where the fiduciary adviser is going to pick the product [among others] off the shelf; they’re not going to get paid more.”

Nationwide had been in the retail banking business since 2006, with insurance, investments and retirement planning as other longer-held focus areas for the company’s 93-year history. Quitting the retail banking business lets it focus on developing its products for new customers, including those who might already work with fee-only advisers.

“Retirement is their big focus; they’re getting back to that and figuring out how to support customers to become financially ready for that, and this is kind of who they’ve been in the past,” said Aite senior analyst Samantha Chow. “You can only spread yourself so thin, and organizations are trying to get back to their core products.”

Compared to a traditional model, where advisers get commissions from the products they recommend, Nationwide is focusing on cultivating a financial-adviser network to market its deferred annuity product, which functions like a pension. The customer pays a flat fee per month and contributes a monthly sum that’s tax deferred until it’s paid out at retirement. While fee-only advisers aren’t incentivized to recommend Nationwide’s product, the company offers them information and resources, including dashboards and calculators, to help present the product to customers.

Some advisers initially reacted with skepticism, said Craig Hawley, Nationwide’s head of advisory solutions and former general counsel and secretary of Jefferson National. He said the company is focused on giving advisers tools to help present the client’s full financial picture.

“We have calculators that determined the value of tax deferral, and deferred annuity companion calculators that advisers have found helpful,” he said, emphasizing that the advisers don’t receive a referral fee or commission from presenting Nationwide’s services.

In addition to in-person outreach to financial advisers at events and conferences, Nationwide also promotes its brand to advisers through email and digital marketing, and “thought leadership” content pieces in industry magazines. Nationwide is promoting a deferred annuity “future pension” product for advisers with millennial clients who won’t have employer-provided pensions, Chow said. It’s also an area startups like BluePrint Income have begun to play in, with deferred annuity products geared at employers. By reaching out to financial advisers with information and tools, Nationwide can grow its name as a trusted provider.

Nationwide is working to transfer retail banking customer accounts to a yet-unnamed institution over a period of several months, the company spokesman said. As of 2017, Nationwide had $236 billion in assets, while Nationwide bank had $7.2 billion in assets and 240,000 retail banking customers.

 

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