Cornering a New Niche

Article excerpt

With financial advice, community banks could capture the lucrative middle-market of retail investment services

Price was never an issue for John Revell in choosing a retail investment center. Rather, the 62-year-old sales and marketing executive says personal service, convenience and trust topped his "must have" list.

So when his former bank cut back on service, Revell walked his accounts down the street to the local community bank, Irwin Union Bank and Trust Co. in Columbus, Ind. He says the bank's ease and convenience of doing business is second to none.

At Irwin Union Bank and Trust, Revell says he gets the valuable service of a trusted advisor when it's convenient for him, not for his broker. At least quarterly, Revell meets with his investment advisor-who is also his broker-over breakfast. Together they review in detail his personal portfolio and build an investment strategy for the weeks and months ahead. Phone calls from his advisor keeps Revell on track between breakfast meetings. Moreover, he says he feels comfortable walking unannounced into Irwin Union Bank and Trust to speak with his financial advisor. "The bank's staff is available whenever I need them."

This is important to Revell. He wants to make the most of his investments before he retires in about three years. In addition to spending more time with his grandchildren, and maybe even becoming a Wal-Mart greeter, Revell hopes to travel more with his wife, Lois. Pleasure trips to Switzerland, Alaska and the Greek Isles linger on his mind.

Retail investment services, once a province of huge Wall Street conglomerates, is emerging as a new, potentially lucrative opportunity for smaller community banks. The historical strength of face-to-face, hands-on service is quickly putting community banks in the driver's seat to serve individual investors. Several investment industry experts agree that community banks have the locations, untapped customer base and close customer relationships to make retail investment programs a success.

The omnibus financial reform law now allows banks, securities firms and insurance underwriters to merge and offer each other's products under the same roof.

Providing financial planning services is the lynchpin for unlocking the community banks' potential advantages in offering investment services. And now is the time to put those advantages-and financial planning advice-to use, several community bankers and consultants agree.

Consumers Look to Banks

Demographic and consumer preference studies indicate that investments are, and will continue to be, where consumers choose to put their money. According to Cerulli Associates Inc., a Boston consulting firm, an explosion of wealth fueled by the seven-year bull market, coupled with affluent baby boomers entering their peak saving years, has resulted in a huge new generation of customers thirsty for reliable investment options and advice.

The good news is that consumers are increasingly interested in buying nontraditional products and services from their banks. In the American Banker/Gallup 1999 Consumer Survey, most investors who chose commercial banks as their principal financial service provider would be interested in obtaining at least one financial service-either financial planning, securities, mutual funds or insurance-from their bank. The share of those willing to buy from banks rose significantly to 62 percent from 54 percent in 1996, when this reading was last taken.

People appear more willing to turn to their banks for investment services for a number of reasons. According to the American Banker survey, customer satisfaction with financial institutions is on the upswing.

Separately, industry watchers also note that the proliferation of online brokerage and nonbank competitors is diluting brand equity, making consumers less brand-name conscious and more sensitive to service extras.

Yet too few community banks seem to be moving to take advantage of these opportunities. …