Academic journal article ABA Banking Journal

Securities Blanket: Banks Thinking about Securities Brokerage Should Consider the Experience and Advice of Several Mid-Size Banks Already in the Business

Academic journal article ABA Banking Journal

Securities Blanket: Banks Thinking about Securities Brokerage Should Consider the Experience and Advice of Several Mid-Size Banks Already in the Business

Article excerpt


With regulatory restrictions and increased compliance costs putting pressure on the top line, banks increasingly are eyeing securities brokerage as a source of revenue. Beyond that, expanded product offerings allow banks to retain clients who would go elsewhere for investment services. For customers, there is the benefit of one-stop shopping, dealing with a trusted party, as well as a rare welcome for those who have limited amounts to invest.

Sales of securities and life insurance products, in addition to fee-based advisory relationships, are "definitely growing" within the bank channel, according to PrimeVest, a Minneapolis-based broker-dealer. "A lot of our [client] institutions have put even more effort behind the investment program because it's an excellent diversification program," says LeAnn McCool, national sales manager.

Third-party partnerships can make securities brokerage affordable for banks operating under budget constraints. And smaller banks aren't alone in looking to enhance revenue through securities sales. "We're seeing some fairly sizable institutions just start their investment programs," says McCool. "Others had them but realized their clients have needs beyond annuities." Wirehouses often aren't interested in clients who don't have six-figure sums to invest, creating a ready market for banks.

Indeed, much of the demand for securities sales is customer-driven, according to $749 million-assets Saco & Biddeford Savings Institution, Saco, Maine, which launched its S&B Financial Services in May. "With interest rates going down, customers who have renewing CDs and savings accounts want to know what other options are available," says Matthew Cyr, a PrimeVest adviser who manages S&B Financial Services. "Establishing a financial services program was timely because we can now offer alternatives to help them make up that gap."

Big value in small customers

LCNB National Bank, Lebanon, Ohio, began offering brokerage transactions about six years ago after realizing there was an underserved community of customers who needed and wanted to invest. "We tried to serve customers of more modest means through our trust department, but couldn't do that and make any money," says senior executive vice-president Bernard Wright.

LCNB's solution was to partner with UVEST, a third-party brokerage firm headquartered in Charlotte, N.C. The arrangement evidently serves its purpose, given that the vast majority of investment accounts have less than $50,000 in them. "If you can tie in with those ordinary folks who are working hard and have an ongoing need, that adds up," says Wright. Nonetheless, banks considering adding a brokerage operation should take a long-term view, he advises." There's a tortoise-and-hare kind of strategy here for income growth," says Wright. "Don't expect it to be a waterfall of money overnight."

In Wright's experience, two key factors contribute to success in securities sales. One is that brokers understand that their most important allies are branch personnel. "Those staff people--if they believe in that broker--will refer folks to the broker because they trust him or her," says Wright. "Absent that, they're back to cold-calling."

The other is a broker's willingness to tend many small transactions rather than trying to land a handful of big sales. "The most successful guy I've got is not in it for the big transaction," says Wright. "His bread and butter are the large number of people he has convinced should be saving for their futures by setting aside $25, $50, $75 or $100 every pay period for their investment products. He gets a commission on each of those. The revenue stream just keeps coming in." As those regular transactions build year after year, clients gain not only confidence in the broker but a relationship with the bank.

Yet finding brokers who share that mindset is easier said than done because most have been schooled to define success as making maximum sales. …

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