Determinants of bank advisor revenues

Abstract

Purpose

The focus of this paper is to highlight the research findings with regard to the performance of client advisors in retail banking by analyzing their revenues and the underlying determinants of those revenues. Retail banking activities are increasingly important to understand in terms of productivity and performance management due to the high degree of competitiveness. This paper takes external and internal determinants of bank advisor revenue performance comprehensively into account. The author also derives practical implications for bank managers.

Design/methodology/approach

Based on the theoretical framework, empirical models are developed, which are based on a cross‐sectional ordinary least squares analysis. In total, four regression models are employed – being the base model, and the three variants of that using differing parameters in order to ensure the robustness of the results. The database encompasses quite sensitive and specific data on 521 retail banking client advisors in Switzerland. Additionally, it is enriched by explanatory variables on a regional level considering the degree of competitiveness and the population in a region, which are expected to be important determinants in retail banking.

Findings

First, bank advisors with closer proximity to clients and less distance to the community, combined with a longer period of work experience in that field, are more successful with regard to revenue performance. Second, the size of client portfolios, measured in number of clients and assets under management, client acquisition, client retention, the upgrades and downgrades across client segments, all have significant effects on revenue performance. Third, the competition and the population in a specific region need to be included in performance measurement and management by bank managers in order to ensure useful comparability across regions.

Practical implications

The hypotheses, as well as the findings, are also discussed with bank managers in order to validate the results and to enhance their practical relevance to the banking industry. Important practical implications are: first, regional differences and competitive pressures need to be taken into account in the performance measurement systems in order to ensure comparability. Second, collaboration across client segments is crucial and needs to be fostered by appropriate organizational structures and incentives. Third, retail bank advisors, which are close to the clients and have more work experience are most successful, which is important for hiring activities.

Social implications

A better understanding of the determinants of bank advisor revenue performance is crucial as performance management systems in banking are difficult to predict due to the varying methods of implementation by bank managers in their daily business. This is especially the case for performance measurement and incentive systems, which also entail social implications with view on potentially detrimental effects, for instance for too aggressive targets without properly taking the client's credit worthiness into account. Furthermore, retail banking is a pivotal area in banking as most people are depending on retail banking infrastructure, services and products.

Originality/value

This paper contributes to the current research by improving the understanding of a bank advisor's performance, as there is very limited research in this field to date, especially when considering the quality of empirical data. The paper adds to research by improving bank managers’ understanding of the determinants of a bank advisor's revenue performance. Especially original is the detailed inclusion of external factors such as competition and population, and their effect on the revenues. In addition the analysis is comprehensive and includes a broad range of relevant factors with a high degree of data quality.

Citation

Mangold, R. (2013), "Determinants of bank advisor revenues", International Journal of Productivity and Performance Management, Vol. 62 No. 7, pp. 674-693. https://doi.org/10.1108/IJPPM-06-2012-0060