First Bank drops IDS as partner in fund sales.

First Bank System Inc. has severed its partnership with American Express Co.'s financial planning subsidiary, saying the match did little to boost investment product sales.

The alliance between First Bank System and IDS Financial Services, announced in April 1993, had been heralded as a milestone in banks' push to sell non traditional products.

The collapse, confirmed by the companies this week, shows how banks are still grappling with the question of what role, if any, nonbank partners should play in their investment products efforts.

"Everyone in banking is trying to figure it out," said Edward Furash, chairman of Furash & Co., Washington.

First Bank System and IDS, both based in Minneapolis, tried stationing financial planners in two First Bank branches to evaluate customers' investment goals and craft blueprints for achieving them.

The idea was that by getting a complete picture of a customer's financial aims and resources, the bank could sell a wider range of products.

But plans to expand the program never got off the ground.

In assessing the trial run, the $25.9 billion-asset banking company determined that its own sales representatives were selling as much as or more than the IDS financial planners, said Larry Crawford, general manager for First Bank System's Minnesota banking group.

The big question inside First Bank System was, "did we really need to partner this thing?" said Mr. Crawford, who oversees two Minnesota branches that hosted the test run.

Last month, after extensive internal debate, the company decided to go it alone. As part of the decision, First Bank System also stopped offering IDS mutual funds.

Though First Bank System soured on having a partner, the company says it remains high on financial planning. "We still believe that financial planning is a good way to sell," Mr. Crawford said. First Bank is working on ways to integrate into its own program the financial planning techniques it learned from IDS, he added.

For now, customers buying investment products through First Bank will undergo a "needs assessment" to determine which products are appropriate for them, Mr. Crawford said.

Next year, the banking company plans to reintroduce a financial planning strategy, he added.

Mr. Furash, who has been a proponent of financial planning techniques at banks, said First Bank System's move doesn't signal a retreat.

"Just because they are breaking with IDS does not mean they are getting away from financial planning;' he said.

As banks fine-tune their investment sales programs, "the tendency is to move toward an integrated, comprehensive sales force and to bring it in-house," Mr. Furash said. Fueling the trend is a push to make investment sales more cost effective.

For Fast Bank, bringing the business in-house could help boost fee income, since it had been splitting revenues down the middle with IDS.

Though company officials declined to comment on the profitability of the IDS arrangement, call report data show that Fast Bank System pulled in $4.2 million from mutual fund and annuity sales in the first quarter of 1994.

Early on, the program with IDS looked like it was going to be a winner.

At the six-month mark, First Bank System's vice chairman, William F. Farley; called the results of the pilots in Albert Lea and Owatonna, Minn., "very positive" and said the program might be extended throughout the banking company's six-state network.

First Bank executives had also said they were considering testing the program in a midsize market, such as Colorado Springs or Fargo, N.D., by the end of 1993.

But the IDS pilot program was never extended beyond the two branches, and by springtime First Bank executives had tempered their enthusiasm.

"We would have moved forward with them, bet their corporate agenda changed somewhat," said James E. Choat, senior vice president in charge of financial institutions at IDS,

For IDS, breaking up with First Bank was a blow, but the company has already set its sights on other partners.

The First Bank venture was "a small piliot," Mr. Choat said, and "now we're moving forward."

IDS has already hooked up with nearly 40 community banks and credit unions, and plans to raise that number to between 50 and 75 by yearend, he said.

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