Bank associations have made a big splash over the past couple of years with new programs to recommend investment marketing partners to their members.
These endorsements are intended to steer community banks toward capable brokerage firms that can help them sell mutual funds, annuities, and other investments to their customers.
But are the referrals working out? Reports from a handful of associations, brokers, and investment marketers indicate that they are, although there have been a few difficulties.
"From the third party providers' standpoint it's great, because it gives them instant credibility," said Lawrence E. Harb, president of Lasalle Consultants Ltd., Melrose Park, Ill.
The American Bankers Association brought these referral programs to the stage early last year, when it engaged Wall Street Investor Services, a mutual funds marketer in New York, to help its members set up and run sales programs.
Earlier the ABA endorsed the Holden Group, an annuities marketer in Los Angeles.
The program catapulted Wall Sweet Investor Services into the national spotlight. It gave the company instant access to a huge pool of about 8,000 banks, 100 of which have engaged Wall Street to help them sell mutual funds.
The deal is just as sweet for the ABA, which shares in the gross premiums and commissions resulting from referrals, according to a former employee of Wall Street who asked not to be identified. The association gets hundreds of thousands of dollars from the deal annually, he said.
The ABA declined to comment on its fees from the deal.
A few months later, the Independent Bankers Association of America followed the ABA's lead and created a broker-dealer subsidiary, IBAA Financial Services Inc., in cooperation with Massachusetts Financial Services, of Boston.
Gary Teagno, president of IBAA Community Banking Network, the trade group's affiliated services arm, said-the venture helps the group's community bank members work with one of the best and oldest investment companies in the business.
The trade-off, however, is that IBAA Financial Services only offers a limited slate of investments -- basically, mutual funds managed by Massachusetts Financial. ....
The IBAA unit has gotten off to a slow start, with only five bank clients so far. Mr. Teagno said the group is planning a big marketing push as soon as it receives licensing in every state.
One banker happy with association referrals is Timothy N. Bryan, vice chairman of Texas' First National Bank of Bryan.
He said an endorsement by the Texas Bankers Association helped his bank hook up with what has proven to be a capable investment marketer -- little known NAP-Aragon, of Austin.
NAP-Aragon has parlayed the recommendation into' relationships with 30 Texas banks. A similar referral from the Tennessee Bankers Association helped it strike deals with eight banks in that state.
But these referrals aren't all wine and roses. One problem, from the investment marketer's perspective, is that the firm has to serve all banks in an association.
In many associations, "all their members aren't that profitable," said Lasalle's Mr. Harb.
Such problems reportedly ended at least one relationship. The Illinois Bankers Association recently dropped its recommendation of Liberty Financial Group because the Boston-based company found it difficult to work with the association's smaller members, according to the trade group's president, Robert Wallace.
He said that 70% of the members have no more than $100 million of assets. Liberty did not return calls seeking comment.
