Fourth of a Series

Even amid a raging bull market, people's interest in buying mutual funds, insurance, and other investment products from their banks may have plateaued, the American Banker consumer survey suggests.

Though a majority of bank customers still say they would buy one or more nontraditional services from their principal bank, the proportion is down from past years.

The decline should alarm bankers at a time when consumer interest in investing is at an all-time high, as is bankers' interest in building financial supermarkets to contend with nonbank competitors.

Of the 504 people in the 1996 American Banker/Gallup survey who called commercial banks their primary financial institution, 54% said they would buy at least one nontraditional service from their bank if it were offered. That has come down two percentage points from 1995 and - more significantly - six points from 1994.

The stagnation may point to shortcomings in marketing plans, bankers and observers said. Though banks are making tremendous strides in their investment products business, many are not communicating their new expertise to customers.

"Consumers have to be shown that these are areas that banks are knowledgeable in," said William O. Adcock Jr., chairman of Synergistics Research Corp., Atlanta. "It's a question of whether or not the banks are demonstrating their ability to manage and understand these products."

"There's a tremendous need to educate people that banks can provide access to services other than deposit products," said Nathan Morgan, senior vice president of Zions National Bank, Salt Lake City. "We have not done a satisfactory job letting people know we are in the securities business or that we sell insurance."

It's a problem that all would-be financial supermarkets - not just banks - are struggling with, Mr. Morgan added.

"The public still thinks of Fidelity as a mutual fund giant and doesn't realize that it offers some of the same products that Schwab does," he said.

The 1996 survey, consisting of 1,031 telephone interviews in September and October by the Gallup Organization, showed virtually no growth in purchasers of investment products from banks. Forty-six percent said they bought at least one of six alternative products - ranging from financial planning to annuities and insurance - from a bank in 1996. This was down from 47% in 1995, statistically negligible in that it was within the three- point margin of error.

Many bankers said these numbers do not tell the whole story, as their investment product businesses are growing at a healthy clip. Some say they have been so successful at giving their brokerage subsidiaries identities of their own that customers no longer feel like they are dealing with a unit of a bank.

Therefore, these customers might not answer affirmatively when asked if they bought securities from a bank.

"A lot of our customers feel they are going to a regular brokerage," said Peter Bielan, manager of Fifth Third Securities, Fifth Third Bancorp's broker-dealer. "While we need the bank to drive in our customers, we make it very clear that we are not the bank, but a brokerage."

Stock and bond mutual funds and life insurance are the two most popular alternative products offered by banks, according to the survey. Of the 1,031 respondents, 20% said they had purchased mutual funds from a bank. The same proportion said they had bought life insurance.

The most active purchasers of these products reported annual household incomes of more than $75,000: 27% of these said they had bought funds from a bank last year, compared with only 14% of those with incomes between $20,000 and $40,000 and 23% of those with incomes of $40,000 to $75,000.

"We're only doing an average job tapping into the mass market," said Dan Saksalad, an executive vice president at Norwest Corp., Minneapolis. "They have some investable assets but not as much as high-net-worth or upper- income people."

The survey suggests that the lower echelons might well be worth targeting. Thirty-two percent of bank customers with incomes between $20,000 and $40,000 said they would be interested in obtaining mutual funds from their bank. That compares to 24% of all bank customers and just 20% of those with more than $75,000 in annual household income, who are more likely to be patronizing nonbank competitors.

With that in mind, Wachovia Corp., an admitted latecomer to the bank investment products game, has geared its program to the minivan set, said Anne Doss, senior vice president and group executive at Wachovia Investments, Winston Salem, N.C.

"These people are not affluent enough to deal with Merrill Lynch, but they have retirement and college needs," she said. "They are underserved from an investments prospective."

Indeed, 39% of bank customers in the $20,000 to $40,000 income range said they would be interested in getting financial planning services from their bank, compared with only 22% of those with more than $75,000 in income and 31% of bank customers overall.

Meanwhile, only 11% of the poll's total respondents - both commercial bank customers and noncustomers - said they had purchased financial planning services from a bank, suggesting an area of opportunity for the future.

According to the survey, the youngest bank customers may prove the most receptive to buying alternative services. Though only 38% of all the survey respondents in the 18-to-34 age group said they had bought a nontraditional product from a bank, 60% of bank customers in that age group said they would be interested in obtaining such a service from their bank.

Thirty-seven percent of these customers said they would consider buying bank-offered financial plans; 29% said the same about bank-offered stock or bond mutual funds.

Increasingly, bankers say they need to take a financial planning approach to selling investments - even if they do not offer formal financial plans. According to Ms. Doss, some banks' emphasis on products rather than on relationships may be partly to blame for the falloff in interest among consumers in bank investment services.

"Banks that take a more product-oriented approach have sold products that may not have been appropriate for their customers," she said. Well- publicized cases of banks following such a strategy have hurt the entire industry.

"We all get tarred with the same brush," Ms. Doss said.

Next: People want branches

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.