Dozens of big banks are building their brokerage capabilities in a bid to give nonbank rivals a run for their money. But few have approached the task with the verve of First Union Corp.

Since 1993, the North Carolina banking company has increased its corps of investment representatives thirtyfold - to 3,337 - through an aggressive program to license branch employees.

First Union not only controls one of the banking industry's largest brokerages but also has wooed top-notch talent from the mutual fund industry to run it. And it has boosted its proprietary fund family to $10.4 billion of assets through a combination of acquisitions, strong performance, and solid sales.

Management commitment to the investment business at First Union reaches all the way to its chairman, Edward Crutchfield, who has stated publicly his goal of building the company into a leading investment manager and provider.

"You need to start off with support from the top of the bank," said Donald A. McMullen Jr., chief executive of First Union Capital Management, in a recent telephone interview.

Mr. McMullen, who joined the banking company last August from American Capital Management and Research, said that First Union has been bent, since day one, on stemming the disintermediation of its deposits and loss of the customers who make them.

"We had a desire to blanket the First Union system, and we wanted to make sure that it was done to our specs," Mr. McMullen said. He is responsible, among other things, for First Union Brokerage Services, which began in 1983 with eight employees and now operates in 2,000 First Union branches.

Though Mr. McMullen says his brokerage unit is profitable now, he said any bank starting its own brokerage shouldn't expect to see a dime of profit for two to three years. From the outset, "it's easily a $10 million to $20 million (capital) commitment for a larger size bank," he said.

"Brokerage today is not going to be a big earner," he added, but does pay off in the long run by keeping customers and their assets in the bank's fold. Brokerage "is a strategic commitment," Mr. McMullen said, not a short-term money-maker.

First Union's plan was to roll out investment services in every region where the bank did business, and to do so as quickly and cheaply as possible while controlling the products and services offered. That ruled out a third-party arrangement or the acquisition of an existing brokerage.

The banking company even clears most of its own investment transactions - a scale business that most brokerages farm out to specialists.

But unlike many bank brokerages, which often use a smaller sales force consisting of full-service brokers with Series 7 licenses, First Union's strategy hinges on its platform bank employees.

The banking company's platform reps have been trained at a rate of 120 a month since the beginning of 1993 to sell investments with Series 6 licenses, and today they make up 90% of its sales force.

"We made the decision based on the number of customers we have," said Dwight Moody, senior vice president of First Union Brokerage Services. "Today, First Union has 11 million customers, and a blended sales force lets us leverage that base."

But while the strategy has allowed First Union to tap its masses of bank customers, some experts say the company will not attract the business of its wealthier clients, unless it moves quickly to upgrade its cadre of full-service brokers.

"The revenue that you generate with a Series 6 sales force is very small and superficial," said Roger Thomas, a St. Louis-based brokerage consultant. "If you really want to tap the upscale, more affluent market, then you are going to need full-time, Series 7-licensed brokers that can provide more sophisticated investments."

First Union's Mr. McMullen said his company has "sweated the details" and will train or hire more brokers as needed. "The pitfall is if you offer too much too fast, and we've tried to have a very controlled rollout," he said.

Daniel R. Darst, executive vice president of the Optima Group, a Fairfield, Conn.-based consulting group, said often a bank's hardest decision when starting a brokerage is "how much are they willing to commit in resources, and what quality of employee do they want to attract - this links in directly to compensation."

Branch employees can be trained much more quickly, and are more cost- effective, some bankers say, because they are typically paid a fraction of what a full-service broker gets for an investment sale.

Mr. Darst estimated that successful brokers at well-known firms such as Smith Barney Shearson or PaineWebber earn $150,000 to $300,000, while most bank brokers earn $50,000 to $100,000.

"Few banks are going to want to have brokers making more than a senior vice president," he said. But a successful long-term brokerage strategy will require banks to pay those higher salaries to attract top talent and build a sales culture, he added.

James R. Eads, president of Signet Bank Corp.'s brokerage unit, disagreed. "Most banks pay too much for distribution," he said.

"It's not worth it to hire dedicated Series 7 people to consummate small sales," he said. "I don't know that there is any significant incremental cost to using the staff that exists in branches. It's really a low-cost delivery system for our products."

Signet, like First Union, built its brokerage from the ground up and uses a blend of platform employees and full-service brokers.

But the Richmond, Va., banking company has actually downsized its sales force by one-third in the past five years, to 25 full-time brokers and at least one licensed employee in each of the company's 246 branches.

"We aligned everything and did away with internal competition," Mr. Eads said. Since 1992, he said, Signet's "total referrals have more than doubled, and our total sales went up 252%."

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