Smith Barney Widening Its Reach By Putting Brokers in Bank Branches

Salomon Smith Barney, the second-largest retail brokerage, wants banks to serve as its entree into new geographical markets.

The Travelers Group subsidiary has been quietly placing its brokers in bank branches in Colorado, Utah, and most recently Tennessee. Under a fee- sharing arrangement, the participating banks refer their customers to the brokers, who then offer them full-service Smith Barney retail brokerage accounts.

"In areas where we don't have a satellite office, we align with banks," said W. Thomas Matthews, an executive vice president of Smith Barney and its director of national sales.

"We've grown through acquisitions in the past. With valuations being as they are, we think we have to grow internally."

Smith Barney is not alone among brokerage firms in its desire to expand via banks. Morgan Stanley Dean Witter sells investment products through major banks like Banc One Corp. and Wells Fargo & Co., while PaineWebber Inc. relies on Comerica Inc. to offer its customers trust services.

But the Smith Barney alliance goes one step further. The brokers in the program are employees of Smith Barney-not its partner banks.

Mr. Matthews declined to identify participating banks in the program, which he described as a pilot. He said the firm is only targeting banks that lack brokerage subsidiaries of their own or those that offer a limited menu of mutual funds and annuities.

Smith Barney's ultimate goal is not to run banks' brokerages, Mr. Matthews said, but to give the firm a presence in cities and towns where it does not currently compete. The brokerage is in 430 U.S. markets and employs 10,300 brokers nationwide.

"One out of six affluent Americans is a Smith Barney customer-we'd like to get the other five," he said.

He stressed that executives at participating banks still have oversight over their programs and help Smith Barney interview the brokers who will work at their branches.

"For the success of this, it's got to be very local in nature. It's not just brokers in the branches, but (involves) local supervision," he said.

But some bankers say striking a deal with Smith Barney is a lot like letting the fox into the henhouse. While small banks often hire third-party marketing firms such as Invest Financial Corp. and PrimeVest Financial Services to run their investment programs, they typically do not bring in nationwide brokerages with household names.

"That's my competition: the brokers, more than other trust companies," said David F. Doten, executive trust officer of PFF Bank and Trust, a subsidiary of Pomona, Calif.-based PFF Bancorp.

"All they're doing is facilitating a bank that doesn't have a retail investment program, but only a few of them don't."

Smith Barney executives beg to differ. Jeffrey H. Champlain, senior vice president and director of Smith Barney's financial institutions division, said small banks face more competition from behemoths like Citicorp, NationsBank Corp., and Wells Fargo & Co., than they do from firms like Smith Barney.

"We're not after their banking business, which the larger banks are," he said. "We're able to vault them ahead so they don't have to go through rearranging their program every few years."

Hired by Mr. Matthews to run the bank pilot, Mr. Champlain was most recently publisher and editor of the magazine he founded-Bank Investment Representative, now Bank Investment Marketing.

Before that, he worked in retail brokerage at Zions Bancorp, Salt Lake City, which he joined after a stint at a Smith Barney predecessor, Shearson Lehman Hutton.

Alliances between brokerages and banks have a spotty history. Dean Witter's first attempt to work with a bank-NationsBank Corp. in 1994- collapsed two years later amid mounting legal woes and wide cultural rifts.

And Chemical Banking Corp., now Chase Manhattan Corp., had a short-lived arrangement with brokers from Liberty Financial Cos.

Still, some bank brokerage and investment executives said Smith Barney has the right idea.

"It would be good for banks because they could airlift a program right in there (with) all the compliance and sales training, and hit the ground running," said Arthur C. Rutzen Jr., executive vice president of Pacific Bank, San Francisco.

To provide brokerage services, Pacific shares licensed brokers under dual employee arrangements with Capital Brokerage, a subsidiary of GE Capital, and McClurg Capital, a local brokerage.

Mr. Rutzen, a one-time Merrill Lynch broker, said working with a big firm provides instant sophistication for clients.

"However, the downside is the culture clash. Bank programs are different from brokerage programs," he added. "In the very successful bank programs, you really have to sell to your colleagues on the inside as much as you do clients from the outside."

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