Competition is so tough for the 450 or so companies that help banks manage their brokerage programs that many are selling out.
But a company in San Antonio has come up with a creative way to survive. Southwestern Business Corp., a financial services firm, has hired a larger competitor to help it run the brokerages of 30 credit unions and community banks.
Southwestern had provided the service through 25 brokers employed by a division within the company called SWBC Investment Corp.
Under the unusual agreement, Southwestern will give a portion of the revenues those brokers generate to Financial Network Investment Corp., a Torrance, Calif., investment marketing firm, in exchange for the rival's greater marketing prowess and more sophisticated technology.
Financial Network, which has 140 banking clients, supplies investment products to about 2,000 financial planners and 300 bank-based brokers.
Unlike SWBC, Financial Network is capable of customizing marketing materials for each client, providing consolidated statements for every bank customer, and tracking sales production of brokers. The firm also has its own asset allocation program.
The arrangement is one that other third-party marketing companies ought to consider, said Richard Ayotte, an industry consultant in St. Petersburg, Fla.
"If they don't, they take the risk that other third-party marketers will pick off their banking clients," he said.
Mr. Ayotte believes that larger companies can add depth to of marketing support offered by small companies. Their large roster of banking clients gives larger companies greater clout with mutual fund and insurance firms. They also have more sophisticated broker training programs, Mr. Ayotte said.
While bigger firms don't have to enter into such agreements, they often serve as a cheap and relatively risk-free way to add to their revenue streams.
"The smaller broker-dealer is being pressured to remain competitive, and has to join forces with companies that have larger infrastructures," said Jack Handy, senior vice president, financial institutions division, Financial Network.
Mr. Benton has eight employees for back-office support; Mr. Handy has 110.
Mr. Benton, who lost a big client about a year ago to Financial Network, began to see the writing on the wall and sought out an alliance with a competitor.
"We don't have all the bells and whistles we need to compete against the big guys," Mr. Benton said.
Southwestern wanted to continue offering bank brokerages even though this business is a small contributor to the firm's bottom line. The company has nearly 2,000 additional clients that include various corporations, auto-leasing companies, banks, and credit unions. It also provides credit insurance, sales support to mortgage departments, and financial planning to corporate executives.
Other companies have entered similar "strategic alliances," including Security First Group, an annuities marketer, which has joined forces with CoreLink Resources, a stronger marketer of mutual funds. The two companies are sharing services with 14 banks in Michigan and Arkansas.
Laughlin Group of Cos. and Lloyd Financial Group of Dallas, also entered a revenue-sharing agreement about two years ago, according to Mr. Ayotte.
