Academic journal article ABA Banking Journal

Consumer Investment Services: What's the "Best Fit" Organizationally?

Academic journal article ABA Banking Journal

Consumer Investment Services: What's the "Best Fit" Organizationally?

Article excerpt

Ever since banks first began offering retail investment services, a debate has raged over where this business should be placed in the organization. Some created a holding company subsidiary; others created an investment services subsidiary of the bank; some put it in an existing unit--usually capital markets or trust; a few even had it report to the credit card division.

Over time, many banks changed the reporting structure in search of a "best fit" for optimal performance, according to Kenneth Kehrer, Ph.D., president of Kenneth Kehrer Associates of Princeton, N.J., a financial-services consultancy. New data, reflecting banks' collective experience, may help resolve the organizational issue.

In the retail bank

In 1997, 40% of bank consumer-investment programs resided in the retail bank, up from 29% in 1995, according to the 1997 Consumer Bankers Association Investment Products Survey. Investment services in an independent securities affiliate fell from 43% in 1995 to 26% in 1996, but then notched up again to 35% in 1997. Of the latter figure, 3% represented investment services placed in a Section 20 affiliate and 32% in a broker/dealer affiliate.

Eight percent of consumer investment programs are managed with shared responsibility, e.g., trust and retail, or retail and a securities affiliate--slightly fewer than the previous two years. Five percent assign responsibility to the trust department--half as many as in the previous two years.

As mergers continue, consumer investment programs face integration issues: whether or not to install uniform distribution and operations procedures in all regions or only to units of the new banking enterprise, for example. Eighty-one percent of respondents to the 1997 CBA Survey said they had one consumer investment program with uniform procedures systemwide, whereas 17% said some regions or units run their consumer investment program with their own independent decision making.

Dollars and sense

To find out what was best fit, the Kehrer-Alliance Capital Investment Program Benchmarking Study calculated retail investment sales revenue and net income (pretax, before corporate overhead allocation) per million in retail deposits. …

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