Though American Express Co. has long competed in the investment products arena through its financial planning arm, the company in May upped its ante considerably by launching American Express Financial Direct.

By offering mutual funds, annuities, and discount brokerage services over the telephone, Financial Direct is expected to emerge as a formidable competitor to banks, as it seeks to combine the charge card business' brand name with the company's success in financial planning.

In a recent presentation to financial analysts - excerpted here - Financial Direct president William J. Heron Jr. outlined his product line and plans for the future.


Let me start with a product we have been offering to card members since 1987. While not widely known, we've been quite successful at cross-selling fixed rate annuities - manufactured by American Express Financial Advisors - to card members.

Nearly 150,000 card members are enrolled in this product, called Privileged Assets. We've enrolled about 25,000 card members this year alone. These customers represent a total of $1.1 billion in annuities in force. And this year, we added a variable-rate product - the Privileged Assets Select Annuity.

In May, we added to that a portfolio of flagship investment products. The Strategist Funds from American Express are a family of 12 proprietary mutual funds. We used the master feeder structure to 'clone' selected (Investors Diversified Services) funds and offer them directly on a no-load basis.

We also offer 58 nonproprietary funds from three well-respected fund families. These funds are also available through Financial Advisors' wrap account, called the Strategic Portfolio Service. We plan to add between 100 and 150 more funds later this year.

The Value Trader Discount Brokerage Account offers trades for only $49 apiece for those making 15 or more a year. The Strategist Money Market Account seeks to offer an attractive yield, with an unlimited check-writing capability.

The products are all wrapped in an Investment Management Account that links all customer activity under one statement. The (account) currently comes with a gold card option for those who want to add the convenience of linking spending, card account payment, and ATM access as well.

All of our products are backed by the high level of service that is synonymous with American Express. Our financial consultants are Series 7 registered representatives. These professionals work with customers over the telephone to help them with their financial needs. If a caller's financial situation is too complex to be handled over the phone, or if they request a face-to-face consultation, we will arrange for a financial adviser to contact them.

Our toll-free number, 1-800-AXP-8800, is in service 24 hours a day, seven days a week. Financial consultants are available 8 a.m. to midnight during the week and during weekend hours as well.

We launched Financial Direct with a full-page advertisement in national newspapers. Our ad was designed to help consumers understand that American Express offers two ways to help them with their financial needs. Our positioning is captured in the thought, "You know where you want to go. We give you more than one way to get there."

We followed the launch ad with product advertisements in national and local newspapers. Significantly, these focused on our top 10 card member markets. We will appear in personal finance magazines beginning in August.

While we plan to use direct response advertising as our primary marketing vehicle, we're supplementing it with direct-mail communications to card members and prospects alike. Done well, direct response print advertising and the targeted card member mailings will reinforce each other and lead to increased overall response rates.

What I have described so far is our offering at the launch of the business. As we grow our business, we will expand our distribution channels as well as our product offerings.

The most obvious expansion will be through the on-line world. We've built our product sets with interactive in mind, rather than having it as an afterthought. Today, for example, American Express customers can download their Investment Management Account checking and card data into Quicken.

Financial Advisors just launched a web site with tools and information based on their services. We will complement the Advisors' web site with a Direct interactive offering at the end of the third quarter. We will provide in-depth information on the products we offer today - from the basics of understanding an annuity to the specific equity holdings of a mutual fund. Interactive tools will help customers understand their financial picture more clearly.

Our on-line offering will also include a transaction capability. We believe our offering will be unique and will add significantly to our ability to capture the true "do-it-yourselfers."

Our second area of focus for the future will be on developing new products. We plan to offer a range of additional products in the coming months. We'll offer additional American Express Strategist Funds later this year. And, as I mentioned, we'll begin offering additional nonproprietary funds by the end of the third quarter.

We are planning to offer FDIC-insured certificates of deposit and other banking products through American Express Centurion later this year. We may also use our marketing segmentation expertise to create tiers or variations of products to meet the needs of smaller market segments, much as we do with our card products.

With insurance, we believe the market opportunity for direct insurance sales is huge. Our plan is to leverage our own insurance capability at American Express Financial Advisors and to offer products like life, and property/casualty insurance directly to customers.

Our Financial Advisors subsidiary, American Express Property Casualty, is a direct marketing of auto and home insurance focusing on preferred risks. Today, it operates in 21 states and does about $100 million in annual premium volume. So, we already have a credible insurance base to build on. Direct marketing of auto insurance, properly done, can be very profitable, as witnessed by the success of companies like Geico and ITT Hartford. And, of note, Schwab recently began selling term life insurance on a direct basis.

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