In a recent column, community bankers were asked to tell how they solve the problem of selling the mutual funds their c u s t o m e r s want without robbing their own deposit bases.
A superb letter from Charles R. Lusk, president and CEO of Rossville Bank in Rossville, Ga.. tells of his bank's experience. It has much merit for other independent bankers facing this problem.
Mr. Lusk writes:
"Approximately eight years ago, we opened a "financial center" in our bank lobby. The center is staffed by an individual who maintains a Series 7 investment license and works very closely with us.
'Like a Shopping Mall Lease'
"This individual is not a bank employee. We lease space to him, and the lease fee is based upon a flat fee plus a percentage of the profits he earns in the financial center. It is set up very much like a shopping mall lease.
"Following several years' experience, we feel that this is the best avenue for the sale of nonbank financial instruments. Not only are mutual funds sold through the center, we also sell annuities, 401(k) plans, self-directed IRAs, Keoghs, etc. As a matter of fact, any financial instrument you wish to purchase can be handled through our financial center.
"In addition to selling various financial instruments, we also do a significant amount of financial planning.
"When we first opened the center, a lot of my banker friends thought I had lost my mind. We gave this individual complete access to our CD maturity-list. They thought for sure I had let the fox in the henhouse.
Strategy Was Defensive
"Our original intent was to conduct this as a defensive move more than as an offensive move. At that time, we were losing some CD funds to the brokerage houses and felt that anything we could do to keep our customers in our lobby was the right thing. Meanwhile, if we made some money off of it, that was just the icing on the cake.
"When he first started this process, he did take more money out of the bank than he was bringing in. However, during the last three years, he has actually been responsible for a net inflow of deposits.
"What we have found over the years is that people now look upon our institution as the place to go for any kind of financial product or financial advice. When they come in, we discover that they have a number of deposits at other banks.
"Once a financial plan is made up for them, they are so appreciative of the advice and work we do for them, that not only do they go out and purchase some other nonbank financial products, but they bring deposits in to us from these other institutions.
$35,000 in Profits
Obviously, we are very pleased with the results of this situation. We are an $80 million institution. This year we will probably put $35,000 into our bottom line as a result of having the financial center in our lobby.
"Although the $35,000 income is nice, we feel that the real advantage we have gained is positioning ourselves in a very special place in the marketplace. At this time, we feel that not only are we providing excellent products to our customers, our deposit base is still growing.
"I would caution anyone who wants to enter the business to be sure of what they are getting into. I would like to suggest that they take great pains in explaining to their customers that the products sold through the financial center are not FDIC insured, bank recommended, or bank sponsored.
"We go to great extremes in this area. We are a very conservative bank, and our goal is to establish long-term relationships with our customers. The products we sell in the center area are very conservative products with strong financial companies backing them."