At some financial institutions, exception pricing is being used on up to 88% of wealth savings and money market savings accounts – and on up to 95% of the balances. Published rates average just 1.44%, but when accounting for exception pricing, actual acquisition rates hover around 4.41%, and they exceed 5% for clients with the highest AUM (see chart).
The effects can be consequential. Exception pricing can present operational and reputational risks to a bank. It can put a strain on internal resources because forecasts probably hadn’t accounted for such high levels of exceptions in a higher-for-longer environment. And it makes responding to competitive moves much more difficult because it confines industry pricing trends to a virtual “black box.”
Even after the Fed begins reducing rates, exception pricing will no longer be the exception. That’s why understanding industry pricing across client segments is a necessary first step in creating a pricing discipline that balances growth with margin. Effective pricing strategies will also require identifying the elasticity of client segments and knowing where to up-price and where to down-price with the least amount of balance runoff as possible. And that in turn will require an exception pricing playbook based on solid wealth-industry data and the expertise to interpret it.
Wealth and Money Market Savings Rates
Actual acquisition rates for wealth deposits is more than 3x posted rates.
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