Record fee income from sales of mutual funds and annuities shows that bank brokerages have evolved in terms of figuring out customers’ needs, attracting top-flight brokers, and selling “upstream” to affluent clients, industry leaders say.
“Over the years, banks have become more and more competitive from a compensation standpoint,” said Mike Mortensen, the president of PNC Financial Services Group Inc.’s brokerage arm. “And banks have upgraded their services consistently.”
The efforts seem to have paid off. Income from the sale of mutual funds and annuities from January through June was $2.74 billion, up 8.6% from the year earlier and the best result for any first half, according to Michael White Associates, a consulting firm in Radnor, Pa., which compiled the data.
PNC was among the banks whose brokerage success jumped significantly from the year before, according to the White firm’s Bank Insurance and Investment Fee Income Report. PNC had fee income of $53.6 million, up 32.5%, the report said.
Much of the increase was due to its wrap program, Capital Directions, Mr. Mortensen said. The program’s assets have shot from $200 million two years ago to $1 billion as of last week.
The program, which provides trust-type service for affluent customers, shows how banks are focusing more on this market segment than a few years before, he said. In the early days of bank brokerages, a broker ordinarily got a referral for a mass-market customer, sold a mutual fund or annuity, and moved on to the next customer, he added.
But in recent years it has become more about deepening relationships with wealthy clients.
“Going upstream has been the trend,” said Mr. Mortensen. Large brokerage firms and trust companies have focused on the wealthiest clients and left those with investable assets of $100,000 to $1 million relatively unserved, he asserted.
Banks have also worked hard to improve their cross-selling, said Scott Sanderson, a vice president of marketing and strategic relationships in the investment products division at Hartford Financial Services Group. And by dangling cross-selling opportunities, expanded product suites, and competitive compensation, he said, they have increasingly attracted the best brokers.
“The type of broker and the products and services they are offering that broker are light years ahead of even five years ago,” he said. “The lines are getting more blurred at the broker level as far as the advantages of a wire house versus a bank or regional broker-dealer.”
Improving sales of annuities and mutual funds also owe thanks to larger factors such as the rebound of investor confidence since the bear market early this decade, said Rachel Perkel, a senior vice president in Wells Fargo & Co.’s private-client services division.
“In the last couple of years there had been a tremendous account of regulatory activity and scrutiny around mutual funds, and that’s finally settling down,” she said. “We are seeing customers kind of coming back to funds.”
Wells’ fee income from mutual fund and annuity sales rose 25.5% in the first half, to $187 million, according to White Associates.
Like PNC, Wells targets wealthy clients, through a 1,200-broker force. But the San Francisco banking company has also made a serious commitment to mainstream customers. In the past two years it has boosted the ranks of its series 7-licensed platform bankers to 1,400, from 500, Ms. Perkel said.
Sales of mutual funds by Wells are up 28% so far this year from the year earlier, she said, and annuities are up 13%.
A planning-based approach, which is used in some form for everyone from entry-level investors on up, has helped deepen relationships and lead to “larger-ticket business,” she said.
“Having a planning base leads to better relationships with customers and more commitment to making investments,” Ms. Perkel said.
Banks as an industry have largely succeeded in making sophisticated investors aware of their investment product offerings, she said, but there is work to do in getting the average investor to think of banks as the place to do their investing.
