Kennebunk Savings Bank's small size ($745.5 million of assets) has not stopped it from adding investment advisory services to its insurance and banking businesses to boost noninterest income during difficult market conditions.
The Kennebunk, Maine, savings bank has owned an insurance agency, Morris Insurance Services, for around 10 years. In 2005 it got into the business of offering investment advice by acquiring an advisory firm.
"It takes a while to get acclimated" with selling investment and insurance products and services, said Kendall Reed, the savings bank's chief executive officer. "We're glad we got in when we did."
The investment in different revenue streams has already started to pay off. Kennebunk Savings' first-quarter noninterest income increased 13.3% from a year earlier, to $2.011 million.
It is hardly alone among small banking companies offering insurance and investment lines. More than half of the 592 banking companies with $500 million to $1 billion of assets reported some insurance activity last year, according to the Bank Insurance Market Research Group. The median net income for banks of that size that sell insurance was $7.09 million last year, compared with $6.52 million for all banks of this size.
Camden Fine, the CEO of the Independent Community Bankers of America, said one advantage of having investment advisory, insurance, and banking businesses is that a bank can generate referrals between its different product lines.
There are many variables, but in general, the more products a bank offers, the better off it will be, he said.
Factors ranging from local market conditions to state regulations will play a role in each community bank's decision about whether to add insurance and investment offerings, Mr. Fine said.
According to Mr. Reed, Morris, which sells mainly property/casualty insurance, generates an income stream that can level out Kennebunk's earnings during times of falling interest rates, like recently.
"It was really fortuitous that we bought the agency" before getting into the advisory business, Mr. Reed said. "It gave us a chance to understand the integration challenges before we got into the investment advisory business."
To provide investment advice, Kennebunk started working with the broker-dealer LPL Financial in 2005. "Having investment advisory services through a broker-dealer is all about diversifying your income stream," he said. "What you're trying to do is fill in the dead spots."
In October 2005, several months after starting to work with LPL, Kennebunk bought Wolf Financial Group, whose owner, Paul Wolf, joined the savings bank's investment advisory staff. He had already been working through LPL before selling his firm to Kennebunk.
Integrating three business lines to the point where everyone works together seamlessly is challenging, Mr. Reed said.
He and his team tried to create a philosophy that whenever a customer walked into the lobby at Kennebunk looking for banking products and services, the staff would try to find out if the customer needed any of its other offerings.
"That's a process that takes a fair amount of time to build into your organization, because it's three different cultures," he said.
Mr. Reed said he wanted investment advisory representatives who would be dedicated to the idea of working at a community bank, rather than people who wished they could be on Wall Street. Over the past four years Kennebunk's investment advisory staff has grown from one to four.
Before Mr. Wolf came on board, the bank's insurance and investment business had been more focused on generating income from commissions. In late 2005 the focus shifted to fees on advisory accounts, which now generate around 65% of the financial services division's revenue.
For the most part, Kennebunk is selling the same product and service mix as it did last year. For example, after interest rates dropped recently, it added fixed annuities. Its investment advisers also have begun to sell variable annuities that include living benefits, which guarantee a minimum payout.
The savings bank's advisory team is using asset allocation mutual funds that automatically balance a portfolio into a variety of investments.
Mr. Wolf, who now runs the division that provides investment advice, said communication has played a key role in integrating his services with Kennebunk's banking and insurance business lines.
For example, when he came to the savings bank, its marketing department initially assumed that his best clients would be young families whose assets have potential for long-term growth, he said, and he had to explain that his better clients were retirees who had already accumulated their assets for making investments.
Those wealthy clients might not need to borrow much money from Kennebunk, he said, and some of the best advisory clients do not have many deposits there, because they prefer to keep their money in the stock market instead.
As a result, Kennebunk's banking employees have to know that some of the best clients to refer to the investment side might actually have small deposits, he said. "You can't assume the other person [from banking or insurance] knows what a good client is like. You have to tell them."
When clients come in for investment advice, they get quizzed about everything from their age to the extent of their assets and liabilities. Kennebunk's advisers often use that information to decide whether to refer the customers to other departments.
Both Mr. Wolf and Mr. Reed admit that Kennebunk has more to do to develop its insurance and investment lines.
It is setting up a computer program to connect its various databases in a way that lets customers pull together information about the different business lines and move their money electronically from banking to investment accounts. Right now, whenever a customer opens an investment account, Kennebunk sends the customer an introductory letter about the insurance agency.
Kennebunk expects to have that system online in the coming months.
The investment and insurance business "takes a while to develop, but once you get there, it feels like running your bank," Mr. Reed said.
