IBAA Revs Up Discount Brokerage To Widen Small Banks' Options

The Independent Bankers Association of America is adding discount brokerage to the limited range of retail investment sales services it offers its members.

Because of the move, the IBAA will be able to accommodate a much broader range of investment transactions through its IBAA Financial Services Corp.

IBAA formed the broker-dealer subsidiary in 1993 with Massachusetts Financial Services, Boston, to help banks hire and train investment sales specialists.

But the unit has been hindered by a narrow charter. Specifically, it has helped investment sales specialists sell only a limited range of investments - annuities and mutual funds operated by Massachusetts Financial Services.

When the discount brokerage service is made available Feb. 13, the unit will be able to handle a much broader range of investments - basically, anything that can be bought or sold through a discount broker.

The discount brokerage service will be operated by U.S. Clearing Corp., New York, a division of the Quick & Reilly Group.

U.S. Clearing will let its bank clients give their customers a discount of up to 70% off full commission rates on stock transactions, confirmations of all trades, and monthly brokerage statements.

"The entire service lets community bankers work on a level playing field with big banks," said William W. Reid Jr., president of IBAA Financial Services.

Mr. Reid acknowledged that IBAA Financial Services has gotten off to a slow start, with only 13 community bank clients, so far, and another 12 waiting to become clients.

But he said the IBAA is aiming to sign up more than 100 community banks by yearend.

The discount brokerage service should help pull in more clients, Mr. Reid said. He noted that nearly all the banks already working with IBAA Financial Services plan to use the discount brokerage service.

But Roger Thomas, president of the consulting firm Thomas Marketing, Columbia, Mo., warned that, as a rule, a discount brokerage doesn't bring in the kind of customers banks should be targeting.

"It's not necessarily a very profitable share of the business," said Mr. Thomas. "Discount brokerages should be looked at as an accommodation to customers but not something to build a business on."

Meanwhile, Mr. Reid acknowledged that the poor performance of mutual funds is making some community bankers nervous about selling investments. However, he added, it's important for them to hang in there.

"I tell them to take the long view of this business, just like their customers who are buying mutual funds for the long term," he said.

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