It's not uncommon for growing banks to dump their platform programs for full-service investment operations, but Guaranty Bank in Austin, Tex., is different.
It has a large and thriving platform-only program that won an award from the Bank Insurance and Securities Association at its recent annual conference.
The strategy has apparent drawbacks. The investment business does not have sole control over platform reps, who report to the bank's retail side. And platform reps aren't licensed to sell complicated brokerage products, limiting the program's scope considerably.
But Guaranty has results to back up its choice.
The platform program, which was started in 1991, has grown through its parent's acquisitions, from 40 branches in Texas to 150 offices across Texas and California. It manages $17 billion of assets, according to the Primevest unit of ING Group NV, its broker-dealer.
This expansion helped fuel growth, from deposit penetration of 3% to 3.5% and $300 million to $350 million a year of product sales in the program's first 10 years, to averages in the last five years of $500 million of annual sales and 6% retail customer penetration, according to Lorin McMurray, the program's head. Last year, it had gross revenues of $24 million. Because platform programs do not have to make big payouts to dedicated reps, Guaranty keeps 55 cents of every dollar, after allocations and taxes.
"Our strategy is to be a low-cost provider of financial services and products, with a low risk profile," Mr. McMurray said. "We can't be all things to all people, so we concentrate on what we do well and find ways to improve on our core strengths of distributing popular packaged products."
"It's certainly cheaper for the bank only to run a platform program," said Brett Giles, the director of sales in Texas for the $17 billion-asset bank, an indirect subsidiary of Temple-Inland Inc. "Full-service programs earn 10 to 15 cents on the dollar, whereas we're closer to four times that. It's a very effective model and a great way to distribute packaged products, although it does have its limitations."
Mr. McMurray manages 310 life-licensed platform reps, of whom 195 also hold Series 6 and 63 licenses. Branches average two platform reps and five employees in all.
The program averages $5,100 a month of gross revenue per platform rep, but the top 100 reps, about one-third of the total, account for 65% of the volume.
"Our goal is 5% deposit penetration, and we're already closer to 6% on average," Mr. McMurray said. The investment program's customers typically have $100,000 to $1 million of investable assets. The bank serves 280,000 households, and the investment program has 80,000 customers.
Guaranty uses a scorecard incentive program to keep its platform reps focused on their myriad branch goals. "What gets asked for gets attention, what gets measured gets done, and what gets rewarded gets done best of all," Mr. McMurray said. The scorecard goals measure the sale, its suitability, and a pure customer-service component. Guaranty uses customer surveys and mystery shoppers to help assess these things.
Guaranty platform reps' sales commissions are competitive with other platform programs - 34 basis points on the first $1 million, 60 basis points on $2 million, and 80 basis points on $3 million. Anything above $3 million earns them 100 basis points, not retroactive to dollar one. "It doesn't matter what they sell - we're product and revenue neutral," Mr. McMurray said.
Mr. Giles said the platform program shifted into high gear when the bank augmented the compensation plan to these ranges five years ago. Most platform programs pay 20 to 30 basis points at the most, he said. Guaranty's maximum payout of 100 basis points helps retain reps but keeps the cost low for the bank. "Once platform reps are there," he said, "they realize that's not a bad payout when they're also on salary."
In the past 10 months the program's top 100 producers had 4% or 5% turnover, Mr. Giles said.
Long a fixed annuity shop, Guaranty diversified in the past five years into mutual funds, variable annuities, and life insurance. Its product mix is now 70% fixed annuities, 30% variables and mutual funds, and a minimal life insurance business.
As the product shelf grew, so did confusion in the ranks. In response, Mr. McMurray said, "we took a hard look at our product menu last year" and cut it by 50%.
Now, the menu has one single-premium life product, through Allstate; three fixed annuities, through AIG, John Hancock, and New York Life; one variable annuity, through Transamerica; and three mutual fund families, American, Franklin Templeton, and Transamerica/Idex. Within each fund family, Guaranty offers seven to 10 portfolios. "With fewer choices, we'll see more mastery of products," he said.
Since fixed annuities remain so popular with bank customers, Guaranty is not turning its back on the product. It is talking with providers about a proprietary fixed annuity that would give Guaranty control of pricing, rates, and commission. He also said, "We're excited about single-premium life wealth transfer products, variable annuity living benefits, fund-of-funds."
As the bank added products, investment sales managers helped ensure the platform reps were up to speed on them. It expanded the force of managers - Series 7 and 24 licensed nonproducing reps - from four to 11. The managers report to two sales directors, Mr. Giles in Texas and David Simula in California, though the platform reps under them report up through the retail side.
This makes the relationship more productive. "We're the white hats, not the black hats," Mr. Simula explained. "Since platform reps don't work for the sales managers, they can talk to them openly about call reluctance, or whatever, and the sales manager can show them how."
The managers, who cover 12 to 16 branches apiece, are responsible for training and mentoring platform reps. Though they are licensed, they do not sell; instead, they draw a salary and earn a bonus when their platform reps sell. A manager's salary is about 25% of his or her take-home pay, augmented by a monthly override on production, a quarterly bonus for goal attainment, and an annual bonus based on overall goals.
Five of the seven managers reporting to Mr. Giles have worked with him since he hired them five years ago. Their experience means they require little attention, which frees Mr. Giles to work on broader strategies with Mr. McMurray and with product vendors.
Mr. Simula said he understands the managers' role. Before being named to the post in 2003, he was a sales manager for three years in Texas under Mr. Giles. Mr. Simula manages 51 branches, and that will grow to 55 in the next few months.
Though he is now the boss in California, Mr. Simula has not forgotten his own rise, and he looks inside his territory to fill the manager posts. "There are four investment sales managers in California," he said. "One is a former number-one branch manager of 20 years, who gets it done very well. Another was a top producer who started as a part-time teller. It's a career path from which I've personally benefited."
In the course of selling an investment product, a rep might ask a client if he or she owns a home. If the answer is "yes," the rep can suggest the client talk to the loan department about a home equity line of credit.
Referrals also flow in the other direction but less often. Referrals from nonlicensed employees in banking centers are responsible for less than 1% of investment sales, Mr. McMurray said. The program averages about 15 qualified retail referrals per investment sale. Referrals from the 17-branch commercial insurance subsidiary are also uncommon, though "we are working on improving our cross-referral program to our commercial insurance producers by putting our best people in front of our best opportunities," he said.
To keep the communication channels open, the program's directors work in concert with their equivalents on the retail side. "When I need time for training, I'll plan it out with the regional manager," Mr. Simula said.
Guaranty wants to continue growing in its two-state footprint, and Mr. McMurray plans to continue doing what has worked.
"We're obviously excited about potential acquisitions," he said, "but we already have a tremendous customer base. That being said, 70% of our sales come from outside deposits. We have an intuitive profiling tool to determine clients' risk tolerance, their investment experience, and their current holdings, and we find other funds through that exercise."
Since much of the bank's client base is conservative, certificates of deposit and money market funds are popular. "We offer competitive pricing on CDs," Mr. McMurray said, "and we make sure we're talking about all the products and services available at Guaranty Bank. But since we're in the top 25% on rates, the phones light up and we get lobby traffic during deposit product campaigns."
Like other bank programs, Guaranty's grapples with how to position itself to capture retiring baby boomers' attention. It is eager to meet retirees' need for often-complicated income solutions, but the question is whether it can develop a program that works on the platform.
"We're huddling up as a management team on our customer demographic, gap analysis tools, spend-down tools, products, and services," Mr. McMurray said. "This wave will last for a while, and we'll play to our core strengths as a product distributor. The question is, do we look at the advisory piece? Can we continue as we are, or as a hybrid program? We're excited about the money in motion and how Guaranty can help clients."
