In many banks today, the working relationship between brokerage and trust organizations ranges from peaceful coexistence to outright warfare.
One solution being proposed is to create a single sales force, usually made up chiefly of brokers, to sell the products and services of both areas.
Unfortunately, the results are often not exemplary. The reason lies in the numbers.
The battle lines between brokerage and trust are most visible where the sales efforts of the two clash. Employees in the branches must decide who gets individual referrals. "Which products are best for these clients? Do I send these clients to brokerage, where I'll get the sure $25 (at least until the new NASD rules take effect), or do I send them to trust, where I might get a tenth of a percent of the assets placed under management? Which group do I like best?"
The losers in this situation are, of course, the bank and its clients. Some branch employees simply don't make the referral at all, to ensure that neither sales group gets angry at them because "you should have sent them to me."
Other referrals are lost because the training offered by each group provides such overlapping criteria for prospects that the customer-contact personnel really can't tell where they are supposed to send a client. No bankers want to subject their clients to being bounced around the bank or being sold the wrong service by virtue of an incorrect referral point.
By putting the two organizations together, selecting a single source for sales, or both, some banks have attempted to minimize these problems. First Union had perhaps the most visible effort in this regard. Its two-year experiment ended abruptly in 1994 because few trust sales were ever made. Nevertheless, because the problems still exist, a number of banks are now trying - or considering - different variations on the same theme.
In this case, as in so many others, the answer just isn't that easy.
Brokers find trust employees too risk-averse; lacking in the most important skills, such as sales ability; and extraordinarily stuffy. And beyond that, brokers generally believe that trust professionals don't put the client's best interests first. As evidence, they note that trust salespeople always try to convince clients to use proprietary investment products and services when "everyone knows" proprietary products can't always (if ever) have the very best performance available in the market.
Trust professionals, on the other hand, are generally convinced that brokers are selfish, egotistical people who would sell their mothers if the price were right. "Everyone knows" they push whatever product is paying the highest commission that day, no matter what is good for the client. Brokers don't put the client's interests first: "If the referral goes to brokerage, we'll never see that client, no matter what the real need."
Logically then, why not choose a single point of contact for selling both product lines? Why not have our best salespeople (usually, the brokers) sell for both groups? Won't that allow the sales staff to meet the client's needs with the best product, or, at the very least, to sell products in the proportion we think fits our client base?
Unfortunately, no. In virtually all banks today the numbers simply won't allow it.
A look at the incentive plans most banks use to sell mutual fund and trust investment management products quickly reveals what the brokers know intuitively:
When you account for the different payouts, the number of legitimate prospects for the two products, sales cycles, time requirements, the probabilities of getting no sale at all, and the varying sizes of sales, the broker is motivated to sell mutual funds first.
In fact, a broker who sells both mutual funds and trust investment management in a typical banking institution today is encouraged to spend five times the effort looking for mutual fund prospects and over 20 times the effort actually selling mutual funds.
In recognition of the imbalance caused by a mere merger of incentive plans, banks have instituted such provisions as "base salaries" contingent on required trust sales and such "hurdles' as trust sales that must be made in order to collect brokerage commissions. Banks have also tried to "level the playing field" by adjusting payouts on trust and brokerage products.
Such provisions have served only to limit broker income without generating many trust sales, and those provisions aren't strong enough to offset the other overwhelming incentives that remain in place. Sooner or later, good brokers go where they aren't penalized by having to sell trust investment management, or banks give in to them and no trust services get sold.
Can this problem be solved? Certainly. But not by asking good sales professionals to act in ways clearly not in their own economic interest. Even trust professionals seldom do that.
Mr. Kemp, a Dallas-based investment management and trust consultant, is the former president of Ameritrust Texas.