3rd-Party Marketers See Small-Bank Opening

Companies that run investment product programs for banks will concentrate on community banks and insurance products in 1997.

Top executives at these so-called "third-party" marketing firms are also planning to return to their roots and focus on helping banks train their investment salespeople. By concentrating on this traditional strength, they hope to win back business lost when many large banks they had served brought their investment product programs in-house.

"Sales haven't developed as quickly (at banks) as they have at those who have used a marketing company," said Frederick A. Henry, president of Financial Institution Marketing Co., Milwaukee. "There are very few banks that have reached their potential."

Most third-party marketing executives said they plan to maintain their larger clients, which offer larger sales volume. But everyone also is looking at ways to tap the community bank market.

"I am hearing from other institutions that they are being solicited, especially those not already in the business," said Reid K. Pollard, president of $122 million-asset Randolph Bank and Trust, Asheboro, N.C.

Mr. Pollard has already signed on with Strategic Alliance Corp., a third-party program offered by another community bank, Bank of Stanly, Albemarle, N.C.

Few small community banks have even dipped their toes into investment product sales. Only about 8% of the 7,000 or so banks with less than $500 million of assets have investment product programs, said Kenneth Kehrer, a consultant based in Princeton, N.J.

"Smaller banks have historically sold more, pound for pound, than bigger banks," Mr. Kehrer added.

But the segment presents difficulties. Smaller banks often require just as much attention as larger ones that offer greater sales volume.

"I think Marketing One wrote the book on how to lose money in the small- bank area," said C. Paul Patsis, chairman and chief executive of the Portland, Ore.-based company. "We found that one or two salespeople take just as much effort to support as at a large bank," he said.

And smaller banks also take months to choose a service provider. Then additional months pass while the program is organized and gets appropriate approvals.

Having learned about these difficulties, Marketing One decided in 1990 to deal only with institutions of $1 billion of assets or more. "And that's not exactly a giant bank," Mr. Patsis said.

Invest Financial Corp., Tampa, claims the biggest share of the community bank market and has a long history of serving smaller banks. "All we are is an Edward D. Jones inside a bank," said Thomas E. Gunderson, president and chief operating officer.

Mr. Gunderson, who started Investment Centers of America in 1983, which was merged with Invest last year, expects a deluge of competitors entering the market. But he doesn't expect too many clients for the new players because they don't have the track record or experience to compete immediately, he said.

To compete for the banks without programs, Invest has hired two people to drum up bank clients. That brings to four the number devoted to new community bank business, Mr. Gunderson said.

He insisted that Invest wouldn't compete on price.

"We're not going to give out the highest payout," Mr. Gunderson said. If a bank's "check is getting bigger, you can't get caught up in percentages."

Essex Corp., the largest third-party marketer, is focusing its efforts on midsize banks, of less than $15 billion of assets, said Kevin Crowe, chairman of the New York-based company.

But Essex also realizes that small banks are an attractive market. Like his competitors, he said the key to making a profit is applying systems developed for bigger banks to smaller ones.

Essex will soon analyze whether it can bring its on-line information system, EASIS, to smaller banks, Mr. Crowe said.

Even Marketing One's Mr. Patsis might be tempted to tackle the smaller market again. Making its newly developed Internet system for brokers work for small banks could let Marketing One add a new chapter to its small-bank book.

"New technology is going to let us more cost-effectively support smaller banks-down to any size," Mr. Patsis said.

At all banks, the hot product in 1997 is going to be insurance, many executives and consultants agreed.

"The real big opportunity is clearly going to be in the life insurance area," said Mr. Henry of Financial Institution Marketing. Studies show that most Americans are underinsured, he said.

Because it has been so expensive to market to the middle class, that segment has been undersold on insurance, he said. Banks offer the perfect avenue for sales to these people, he said.

Fimark, Woodland Hills, Calif., expects its endorsement from the Independent Bankers Association of America will help it overcome some natural barriers to signing up new bank clients.

This year, Frederick Stoutland Jr., Fimark president and chief operating officer, expects to sign up 100 banks.

The company specializes in insurance products and is about to license its IBAA life insurance product for marketing to the association's 5,600 member banks, which average $100 million of assets, Mr. Stoutland said.

"Most of these banks are virgin banks," he said.

But they are still eager to enter the business.

"I think the area of life insurance will be very successful," said W. Page Ogden, president and chief executive of Britton & Koontz First National Bank, Natchez, Miss.

But legal and cultural issues remain to be surmounted, he said.

"In Mississippi we're trying to sort out this whole issue of where a national bank can sell" insurance, he said. "I'm hoping it will change this year."

The $150 million-asset bank started selling products using Premier Bancorp.'s program four years ago. Now it sells investments through Stearn, Agee & Leach, a Birmingham, Ala., regional brokerage.

While life insurance would broaden the bank's spectrum of offerings, Mr. Ogden's expectations for property and casualty sales are minimal.

In tackling insurance sales in general, he said, banks should look for brokers who have actually sold the product.

Bankers are "just not accustomed to selling insurance products, or mutual funds for that matter," Mr. Ogden said.

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