For Banking, Brokerage Is a New World; and Vice-Versa, Says Organizer of Program at North Carolina Bank

By Friedenberg, Edward J. | American Banker, May 4, 1984 | Go to article overview

For Banking, Brokerage Is a New World; and Vice-Versa, Says Organizer of Program at North Carolina Bank


Friedenberg, Edward J., American Banker


WINSTON-SALEM, N.C. -- The discount brokerage business should fit with banking, says David L. Neal. The format is similar to banks' traditional way of doing business: the customer is someone who knows that he wants, and he seeks out the seller.

But, Mr. Neal says, after nearly two years as a broker for a bank, bankers are "really different."

Mr. Neal is cofounder and former president of Salem Securities Inc. of Winston-Salem, a discount brokerage purchased last year by First Union National Bank of Charlotte, N.C. He remained on as president until last month, when he left to go into business for himself again.

What impressed him most, he said, was the difference in the size of the two companies. Even though he had been vice president and office manager of Smith Barney, Harris Upham & Co. in Winston-Salem, Mr. Neal was unprepared for "elaborate rituals" like job descriptions and requisition forms found in large companies.

Size aside, however, he agrees that there are "cultural" differences between bankers and brokers. "We noticed it when we moved into the bank building. Our level of activity and the way in which we do our business were so different from what they were doing."

But banks entering the field, he says, want to make the brokerage business another part of the bank. "They have all these experts, and tkey keep helping you. I talked to Charlie Schwab [of Charles Schwab brokerage house acquired by BankAmerica Corp.]; they kept trying to do various things to be a help to him, too."

"The brokerage business is different from whatever else banks do," he says, "and because of that I would think it would make more sense to keep it as autonomous as possible."

But "this year is not last year," he says, and he sees a new trend at First Union. "They are really trying to get away from thinking in terms of "Well, this is a bank," and to consider themselves some type of financial service."

First Union Corp., the holding company, is setting up a new subsidiary, First Union Securities Corp., which will encompass its brokerage services. Mr. Neal's cofounders at Salem Securities, James W. Kluttz and James M. Meyers, remain at First Union and have divided Mr. Neal's duties.

In addition, Mr. Meyers has been placed in charge of developing the North Carolina market, and is the first officer in Winston-Salem to be assigned that task. Up until now, all marketing was done from First Union's trust department in Charlotte.

Mr. Myers, who operates the trading desk and is responsible for the firm's marketing, also sees a difference between bankers and brokers. He sums it up in one word: "Commissions! The more incentives they inject into banking the more it will become aggressive like the brokerage business. That is the influence of brokerage in banking, and it will grow -- because it works."

If so, First Union is on the road, according to Richard K. Wagoner, the senior vice president and general trust officer who has overseen the bank's involvement in brokerage since its inception in 1982. Don't Use 'Bank'

"We are a pay-for-performance organization," says Mr. Wagoner. "We have something in excess of 40 incentive pay plans in place and are working very hard to put incentive pay in." The bank, he says, "has positioned itself as a strong player in the financial service industry. We don't use the term "bank" a whole lot around here anymore."

As for brokers, he says, if anything the backing of a $6 billion financial institution allows them to be more aggressive.

For First Union brokers, the incentive is based on net income before taxes and is added to base salary. The individual brokers are not paid on a commission basis. "In brokerage, we don't want sales on commission," Mr. Wagoner says.

All First Union brokers, the incentive is based on net income before taxes and is added to base salary. …

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