Just five years ago, Marketing One Inc. was at the top of its game. In the promising new business of helping banks sell mutual funds and annuities, it was the No. 1 company, with $2 billion of sales through 100 clients.

Today, that once-bustling business is a shadow of its old self. Mergers and missteps have cost the Portland, Ore., firm half its clients, maybe more. Sales tumbled to $703 million in 1997, according to a survey by Kenneth Kehrer Associates.

Marketing One now ranks seventh among bank investment marketing firms, and the competition is gaining on it fast. Meanwhile, the firm continues to lose bank clients. On Tuesday, San Francisco-based Bank of the West said iwhich was bought by ABN Amro Holding NV, Netherlands.

And one of its largest bank clients, San Francisco-based Bank of the West, which was recently bought by First Hawaiian Inc., is said to be about to pull the plug on the relationship and switch to another vendor. A deal could come as early as this week, industry sources said.

Executives at Marketing One did not return repeated phone calls seeking comment for this article. A spokesman for its parent company, PennCorp Financial Group Inc., declined to comment. But dozens of competitors, clients, former employees, consultants, analysts, and product vendors did provide insights on where the third-party marketer may have gone wrong-and what they're still doing right.

Now, these observers say, Marketing One's future hinges on the fortunes of its financially troubled parent. PennCorp, which is under pressure from lenders to reduce its debt to 35% of capital by March 31, is selling off units to raise cash. It announced Monday that it is evaluating bids for United Life and Annuity Insurance Co., a unit that includes Marketing One.

Observers said that Marketing One would probably be sold as part of a package. Nonetheless, at least one company has looked at Marketing One by itself and taken a pass, said an analyst who covers PennCorp. He declined to be named.

Marketing One's experience shows how difficult it can be to maintain a business that feeds on the fast-changing, rapidly consolidating banking industry. The tide of mergers is beyond their control, so their prospects depend on how nimbly they can reposition themselves.

Third-party marketers, as companies like Marketing One are known, have been hammered by bank mergers and by clients pulling brokerage capacities in-house. With fewer large banks seeking their services, they have been forced to shift their focus to smaller banks that are costlier to serve.

Marketing One, which in 1990 decided to deal only with institutions of $1 billion of assets or more, has been particularly hard hit. Observers said Marketing One never recovered from the loss of key accounts and was too slow to adapt to the changing product needs of banks.

Marketing One's "rallying cry was 'annuities carry the freight.' And they never changed," said an executive at a competing firm. "They didn't adjust to the market."

To be sure, Marketing One has tried to increase its presence in banks.

For example, in 1995 the firm developed Cyberlink, an Internet-based resource tool, to gain new distribution channels faster and cheaper. Cyberlink lets sales representatives access product information, training materials, and customer information, among other things.

"This is the only way we felt we could survive," James M. Truax, executive vice president of Marketing One, said in an interview during the summer.

Nonetheless, the firm's investment sales at banks have continued to nose dive.

If Marketing One's remaining client banks and product vendors have any complaints, however, they aren't airing them. Among its clients are Sovereign Bancorp, Wyomissing, Pa., and MidCity Financial Corp., Chicago.

Some observers said that Marketing One has switched focus again, using Cyberlink to support sales of United Life's fixed and variable annuities.

"So that probably diverted some attention from the traditional business," said Kenneth Kehrer, a Princeton, N.J.-based consultant to the third-party industry.

In addition, Marketing One never recovered from the loss of large bank clients several years ago, said Richard A. Adams, director of new business development at Compulife Inc., a third-party marketing firm in Midlothian, Va.

For example, Wells Fargo & Co., San Francisco, which had been the firm's largest producer, pulled its brokerage in-house in 1994. Marketing One also lost First Fidelity Bancorp, Newark, N.J., which was acquired by First Union, Charlotte, N.C., in January 1996.

Another large client, Minneapolis-based First Bank System, which bought U.S. Bancorp in August 1997, stopped using Marketing One for consulting and wholesaling fixed annuities several years ago.

"So much of their business was built on those three accounts that when they lost them, it changed their course dramatically," Mr. Adams said.

"They lost those accounts through acquisition and internalization, not because they weren't doing their jobs," he added.

But one third-party marketing executive said that Marketing One's reputation was tarnished among banks for its failure to offer fixed annuity products with lower commissions and shorter surrender penalty periods.

When competitors began offering products with 5% and 6% commissions, Marketing One continued to sell fixed annuities that carried an 8% to 10% commission, the executive said.

In addition, customers who bought annuities through Marketing One could not sell them for eight to 10 years without incurring a penalty, whereas other companies let customers sell the products, penalty free, after five or six years.

Nonetheless, some product vendors said they still considered Marketing One a key partner.

"They do good production for us, and we really haven't seen anything change," said Michael C. Denton, senior vice president of financial institution marketing for Jefferson Pilot Financial, Greensboro, N.C.

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