HOLLYWOOD, Fla. — Bank-owned investment management firms have blamed their recently sluggish growth on a changing regulatory environment and challenging yield curve, but executives at the Bank Insurance and Securities Association conference here said investment units that aren’t growing should begin better leveraging their parent banks.
“Our industry has been guilty of the victim trap,” said Rob Comfort, the president of BISA and the senior managing director of the Huntington Investment Co. unit of Huntington Bancshares Inc. in Columbus, Ohio. “We like to say how we have to depend on other companies, and we like to blame things that are out of our control. But the truth is, everything is under our control. … We can drive our own success no matter what the market says. There are things we can do that can make us more successful.”
New demands have made it difficult to grow at a sustained rate or to increase profits, Mr. Comfort said, but being a bank subsidiary creates a lot of opportunities for cross-selling. Executives said banks are at a crossroad as they decide whether they can generate revenue from their investment management units or are better off getting out of the business. Some banks are using data mining and cross-selling to increase wallet share and become the trusted adviser to a larger share of their parent banks’ customer roster.
Matthew H. Lobas, a senior vice president at the Wells Fargo Funds Management LLC unit of Wells Fargo & Co. in San Francisco, said developing wallet share means developing a customer for life.
“We call it the ‘great eight,’ ” he said. “If we sell eight products or services to a customer, then they are a customer for life. Right now, the average customer has five products with us. The more products, the better.”
Robert J. Mittel, the president and insurance program manager at Independence Community Insurance Agency, said the notion of building an investment or insurance business beyond the branch platform is a foreign concept at most banks — but shouldn’t be. (The agency is a unit of Independence Community Bank in New York, which has agreed to be bought by Sovereign Bancorp of Philadelphia in a deal scheduled to close in July.)
“To most of us, we build our business on referrals in the branches,” he said. But to generate more assets for Independence’s insurance business, Mr. Mittel said, he is partnering with other areas of the bank, including its private bank and trust operations.
Mr. Mittel said that, in the past 12 months, the insurance unit has closed 40 insurance deals and 15 investment deals by working through other divisions of the $18 billion-asset bank.
William T. Bromage, the president and chief operating officer of Webster Financial Corp. in Waterbury, Conn., said his company has used data mining in order to better understand customers’ behavior patterns and the types of products and services that interest them.
The banking company has developed cross-selling in the past three years by establishing 20 teams across the organization that work to deepen relationships, he said. In that time, cross-selling has risen by 35%, including 45% last year.
Ken Poirot, a Houston-based senior vice president at the Frost Brokerage Services division of Cullen/Frost Bankers Inc. in San Antonio, said aggressive cross-selling can deliver immediate dividends. Since he became sales manager in 2004, he said, the brokerage unit has managed two consecutives years of double-digit revenue growth — 11% in 2004 and 15% in 2005.
This revenue growth was produced from strong internal partnerships developed in the bank, Mr. Poirot said. And to generate these referrals he needed a rewards program to show other parts of the bank “what was in it for them.”
“Compensation meant more cooperation,” he said. “If you can adjust your compensation so everyone wins, more cross-selling will occur.” The referral rewards program gives investment officers a portion of the fee income generated from referrals, he said, and trust officers get credits for bringing in fees.
Richard Keating, a vice president at the HSBC Insurance unit of HSBC Holdings PLC, said compensation drives this business.
“I know my partners’ compensation plans better than they do,” he said. “I can tell them about their compensation plans inside and out. I have to know how people are getting paid in order to get them to develop more referrals.”
Even given strong compensation plans, he said, it can be difficult to develop relationships. “I have departments in the bank that have been burnt badly by insurance products,” he said. “They have been embarrassed, and they have lost pieces of business. We have to work hard to open up dialogue with them.”
John L. Carter, the president of Nationwide Financial Distributors Inc., the bank distribution unit of the big Columbus, Ohio, insurer Nationwide Financial Services Inc., said he sees a big opportunity for financial services companies because by 2010 there will be $30 trillion of investable assets in the marketplace. About 63% of people want to deal with one trusted adviser, he said.
“Individual investors could care less what is on the agenda at a bank,” he said. “Individual investors want you to make it simple for them and make it understandable.”
This makes customer relations the ultimate key to banks’ success at cross-selling and gaining wallet share, Mr. Carter said. “The reality is, we read the research and we score very poorly [on customer service] when compared with other industries,” he said. “I mean, some do well, but I think that that just brings up the average for the rest of us.”
Everyone at the conference agreed that having the support of senior management is crucial to developing a strong investment business within a bank.
“We do everything we can to help banks develop a wealth manager strategy, but if it isn’t a key strategy for the bank, if it is a part-time business, then really all you are doing is preparing customers for the person that will come with the tools and dedication to take that business away,” Mr. Carter said.
