When community banks want to jump-start their securities sales efforts, they typically turn to third-party marketers for help in hiring investment sales representatives and getting the products they wish to sell.

But banks with more developed brokerage operations have another, often-overlooked option: working with a financial planning broker-dealer.

These broker-dealers, who hold series 7 licenses and provide back-office services for independent investment advisers, have to a large degree the same roster of products and services as third-party marketers.

There are differences, however. With third-party marketers, the rep is usually a dual employee who works for both the bank and the marketer. Also, financial planning broker-dealers often pay out a higher percentage of the product commission to their bank partners.

Typically, a third-party marketer pays 65% to 80% of commissions to a bank, whereas an independent firm pays 85% to 90%, said Kenneth Kehrer, president of Kenneth Kehrer Associates, a Princeton, N.J., consulting firm.

That is because third-party marketers offer more support services up-front, such as hiring a representative, setting up a compliance program, and doing the marketing that a fledgling program needs to get going, Mr. Kehrer said. Third-party marketers often undertake a new bank program with the knowledge it will not be profitable for a year or more, he said.

On the other hand, financial planning broker-dealers are set up to support bank representatives who are already up and running, Mr. Kehrer said. “They have made good inroads into the third-party marketer after-market,” he said. “A third-party broker-dealer does the implementation work, then the independent broker-dealer comes in with a higher payout.”

Another, more subtle difference may also make financial planning broker-dealers an appealing alternative for some banks.

Richard Ayotte, president of American Brokerage Consultants, a St. Petersburg, Fla., firm that focuses on third-party marketers, said the independent rep’s “mentality is different” from that of the typical bank-employed broker or third-party marketing rep.

Independent representatives are used to having to build their own businesses rather than waiting for referrals from tellers that might never come, Mr. Ayotte said. In fact, an independent representative with a client roster might actually bring deposits into the bank, he said.

Still, on the whole, independent broker-dealer firms — many of which are now owned by insurance conglomerates — have not shown much interest in the bank market. Though several of these broker-dealers work with a handful of bank-based reps, most have dismissed the bank market as too expensive to break into.

“From an independent standpoint, it’s very hard” to help a bank increase its business “because it’s hard to recruit reps,” said Dennis Gallant, a consultant at Cerulli Associates Inc. in Boston. According to several observers, this is because many reps who go independent come out of a wirehouse or regional environment and do not find working in a bank attractive.

Also, many brokers already working in banks may not be productive enough to cross the radar of the average financial planning broker-dealer, let alone meet its minimum production requirement, the observers said.

But some financial planning broker-dealers have been working effectively in the bank market.

Commonwealth Financial Network in Waltham, Mass., has been inching into the bank business since 1991. It recruits banks and entertains approaches from bank representatives working with other broker-dealers.

The company currently has 17 bank clients. Of its nearly 900 financial representatives, 49 work with banks.

Priscilla Hollenbeck, Commonwealth’s vice president of compliance and general counsel, said its bank partners are held to a strict profile. The company looks for a mature brokerage program with a dedicated financial service professional who is committed to building its business, she said.

When a bank that does not already have a program approaches Commonwealth, it suggests that the bank use a third-party marketer to build its brokerage business and then come back once it is established, Ms. Hollenbeck said. “We talk to a lot of banks, but we don’t necessarily join forces a lot.”

Last year Commonwealth’s bank business generated $11 million, or 7%, of the company’s overall commissions. The independent reps who work in banks produced about the same amount of business as those working outside banks.

Finding a good investment sales representative is difficult, and Commonwealth, like most independent broker-dealers, is not set up to train an inexperienced rep, Ms. Hollenbeck said.

Bank Rhode Island, a $740 million-asset subsidiary of Bancorp Rhode Island Inc. of Providence, is one bank that started out with a third-party marketer and made the transition to a financial planning broker-dealer.

The bank began working with Commonwealth in December after ending its agreement with Essex Corp., a New York third-party marketer, which had previously sold annuities in the bank’s branches.

James V. DeRentis, senior vice president of retail banking, said that Bank Rhode Island chose to work with Commonwealth over three third-party marketers, including Essex, because of its financial planning orientation. The small and midsize business customers that make up much of the bank’s customer base “tend to have a higher net worth and need more financial planning tools,” Mr. DeRentis said.

Another financial planning broker-dealer that has chosen to be involved in the bank market is Linsco/Private Ledger Corp., which has headquarters in San Diego and Boston. It has worked with banks for 15 years and is one of the largest of its kind in the bank market.

James P. Norwood, vice president of financial institution services, said LPL takes a dual approach to banks.

About 70% of the banks with which it works have programs in which the investment representative is a dual employee of both the bank and LPL — much as in the typical third-party marketer arrangement. The other 30% are independent advisers, typically financial advisers who had previously worked in the bank for a third-party marketer. LPL supplies education and back-office services for the investment reps.

There is not a lot of difference between the two approaches in terms of services or expertise, Mr. Norwood said. In general, banks just starting out prefer to work with an unaffiliated broker, while those with larger, more mature investment programs might want to hire an investment rep in order to have more control over the program, he said.

“Most banks that join us convert from other broker-dealers because they want to get to the next level,” Mr. Norwood said.

Richard K. Bryant, president of Capital Investment Cos., an independent financial planning broker-dealer in Raleigh, N.C., said his firm actively seeks bank investment clients but primarily as a way of getting other, more profitable business from those banks.

Capital Investment sponsors independent representatives who work in banks through two subsidiaries, Capital Investment Group Inc. and Capital Investment Brokerage Inc. Other subsidiaries provide services such as mortgages, trust, retirement planning, and cash management — all attractive businesses in terms of cross-marketing opportunities.

Because the profit margins on investment sales are so thin — about 8% to 12% — Capital Investment makes most of its money from the other services, Mr. Bryant said. And being able to supply investment services helps Capital get its foot in the door, he said. “Banks want more than one service,” he said.

SunAmerica Securities Inc., a longtime financial planning broker-dealer owned by SunAmerica Inc., which was bought by American International Group Inc. of New York in 1999, does not actively seek out bank clients. But it has found that banks, especially community banks, are ready customers for its year-old iValue division, which matches financial planning operations with buyers.

James T. Sinyard, a vice president of iValue, said that some community banks have been willing to buy a financial planning operation — the usual price is about 1% of assets under management — in order to ensure a “seamless” transition when the financial planner already working in their branches decides to retire.

So far two community banks have bought operations with iValue’s help, and another sale is in the works, Mr. Sinyard said.

The financial planner selling the operation typically stays on for a year or so while he breaks in a successor, and SunAmerica Securities provides products and back-office support, Mr. Sinyard said. The alternative would be starting all over with a new financial planner and a new brokerage, which would mean transferring customer accounts, he said.

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