First Michigan Bank Corp. is overhauling its brokerage in a bid to jump-start lackluster sales and increase penetration of its customer base.
In a decisive move, the $3.2 billion-asset company has abandoned selling investments through full-time brokers. The bank is training 150 bank employees to sell investments from the platform.
The Holland, Mich.-based company is also hiring five so-called wholesalers to encourage the licensed platform employees to push its ailing proprietary mutual funds. The first is already on board.
"We all know that banks are losing assets to our nonbank competitors," said Larry D. Fredricks, First Michigan's chief financial officer. "What we're doing is trying to meet the competition at the level they operate."
Many banks are feeling similar pressure to make their investment businesses more profitable and further integrate them into the mainstream bank.
But at a time when many bank brokerages are hiring more seasoned brokers, experts say First Michigan's strategy of building a part-time investment sales force is somewhat unusual.
"It's certainly bucking the trend," said Carolyn F. Spitz, a financial services consultant for Spectrem Group, San Francisco.
Ms. Spitz said licensing branch employees is cheaper and allows a bank to service more customers more quickly.
"It can rejuvenate branch staff," Ms. Spitz said. She added that the bank can expect sales to increase within six to 12 months as employees begin leveraging their relationships with bank customers. "The challenge will be to sustain it after that."
Terry L. Swenson, president of the bank's brokerage and insurance units, is in charge of the investment products overhaul.
When he arrived at First Michigan in February, he began a program to license 50 branch managers to sell packaged products such as mutual funds and annuities. The program is expanding now to include platform employees in the bank's 87 branches.
Until recently, First Michigan had concentrated on selling individual stocks and bonds in a few branches to about 1% of the bank's customer base - a strategy that did not play to the bank's strengths, according to Mr. Swenson.
"One of the biggest mistakes a bank can make is not to take advantage of its distribution network," Mr. Swenson said. "You have to leverage the brick and mortar."
Mr. Swenson expects the new program to help push household penetration up from 1% to 30% in the next few years - the average bank brokerage serves only 4% of its customer base, experts say.
First Michigan brought in gross commissions of $141 million in 1995, but about 70% of that was from stocks and bond sales. Mr. Swenson said he expects to bring in $65 million to $70 million in commissions this year, but says the concentration on mutual fund and annuity sales is likely to generate higher profits than last year.
According to Financial Research Corp., a Chicago mutual fund tracking firm, the $326.8 million-asset FMB Funds saw outflows of $11 million from long-term mutual funds and $19 million from money market funds in 1995.
"Net sales have been minimal since they seeded the funds in 1991," said Dennis Dolego, a partner with the firm. "All the growth they had last year came from appreciation, which more than offset the outflows."