Despite a gangbusters year for selling mutual funds, bank brokerage chiefs remain frustrated that they aren't meeting their bosses' expectations.
Their dismay was expressed at a symposium last week at New York-based mutual fund company Alliance Capital Management LP, according to Richard Davies, a managing director overseeing the financial institutions and advisers division there.
"A lot feel if they don't double their income even from this year's level, they're not going to be an important part of the bank going into the future," he said.
Though bank brokerages often generate twice the profit margins of their regional brokerage counterparts, they continue to contribute only 2% to 4% of the parent companies' bottom lines, said Kenneth Kehrer, a Princeton, N.J., consultant who presented results of a study at the symposium.
Bank brokerages are "much more profitable than the regional firms," Mr. Kehrer insisted. "But the underlying expectation of the banker who runs the holding company is that this was going to be a much bigger deal."
Mr. Kehrer said the 20 banking companies in his study are predicting their brokerages' net income for 1997 will be 34% of total revenue, the traditional way the units evaluate their programs. That would be up from 28% in 1995 but short of the 36% for 1994 and 38% for 1993.
Moving into next year, things are going to get harder for brokerage chiefs, Mr. Kehrer said. As they feel even more earnings pressure, Mr. Kehrer predicted, brokers will start demanding higher base salaries.
One reason bank brokerage profits are so high is that brokers are paid much less than their counterparts at the regional firms. The rationale was that bank brokers got referrals from tellers and other bank employees, thus gaining more opportunities to earn commissions than stockbrokers who must spend time seeking out customers.
But in-house referrals are drying up. Mr. Kehrer said referrals dropped 50% from 1994 to 1995. Making matters worse, the average mutual fund sale dropped last year, to $496 from $711 in 1994.
That means bank brokers must beat the bushes for clients and then will earn less commission because the average sale is smaller. Thus, those that left traditional brokerage companies for banks may be regretting their move.
"They're thinking, 'I'm doing exactly what I did at Shearson, and you're paying me less?'" Mr. Kehrer said.