A state bank association has found out the hard way that being in the brokerage business requires solid partners to avoid disaster.

The Banks' Association of Connecticut is still dealing with the fallout of an ill-fated alliance with a clearing agent that went out of business. The February bankruptcy of New York-based Adler Coleman & Co. led to the freezing of all the firm's accounts, including the 650 accounts it handled for Connecticut Association Securities, the bank association's brokerage.

While bank customers lost no money, for most of March they couldn't make trades in their accounts or receive statements, dividend checks, or proceeds from recent sales.

The incident "will live in infamy around here," said Robert F. Brawders, the brokerage's president.

For some industry observers, the debacle illustrates the problems that can ensue when bank associations or small banks set up their own brokerages rather than rely on the support of third-party investment product marketing firms with a solid track record.

"You have to be very careful who you align with," said William D. Wilsted, president of the graduate school of banking at Colorado University. "Your customers' money and your association's reputation are at risk."

So far, there has been little backlash from customers at the four banks that have the brokerage program, Mr. Brawders said.

But, he added, "I'm certain that ultimately we will have folks who are so unsettled they will move on. That's the nature of any debacle."

In the days following Adler Cohen's bankruptcy filing, the Banks' Association of Connecticut tried to calm customers by sending letters to explain the developments.

And brokers at client banks did some scrambling of their own. Ian Hughes, a broker at Richfield Bank, called all 150 of his customers

"There was a certain level of discomfort on the part of customers," said Mr. Hughes. "But they essentially said, 'If you say it's going to be all right, we'll believe you.'"

Still, Mr. Hughes agreed with Mr. Brawders that some customers will likely depart once all paperwork is cleared up. The incident "will serve as an impetus," he said.

Mr. Brawders said there is little the Connecticut banking group could have done to anticipate Adler Cohen's closing. Indeed, a spokesman for the New York Stock Exchange linked the firm's problems to the shutdown of another business it had close dealings with.

The Banks' Association of Connecticut started its brokerage operation last year, seeing the unit as a way of allowing its member banks to maximize profits and control over their programs. The state trade group chose Adler Cohen as its clearing agent because of its flexibility, Mr. Brawders said. "They would provide the services we needed to be competitive."

But a few months into the contract, it became apparent that the firm would not deliver as promised. The bank association was in the midst of switching to another clearing agent, the Pershing Division of Donaldson, Lufkin & Jenrette Corp., when word of the bankruptcy hit, Mr. Brawders said.

The association would have been better off if it initially chose Pershing, or any other large firm that caters to bank brokerage programs, industry observers said.

These firms have reputations and staying power, said Kenneth Kehrer, president of a Princeton, N.J., consulting firm that bears his name.

In fact, a small operation like the Connecticut group might have been better off aligning with an investment product marketer that knew the lay of the land, industry experts said.

These companies are "extra careful about outside companies they work with and have depth of staff," Mr. Kehrer said.

The Connecticut brokerage continues to do business with four of the five banks it initially contracted with, Mr. Brawders said. The fifth, Southington Savings, pulled out for other reasons, a bank spokeswoman said.

Mr. Brawders also said he was optimistic that the program, while taking longer than expected to add new clients, would be growing in the months ahead.

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