KeyCorp has revitalized its retail investment business by turning back the clock, its executives said.
A decade ago the Cleveland company acquired regional broker-dealer McDonald Investments and put it in charge of its in-house retail brokerage unit. But poor results prompted KeyCorp to ditch that arrangement and reform its original retail brokerage.
That business, Key Investment Services, is now two years old and has already tripled the revenue from bank customers generated under McDonald, according to Marc Vosen, the unit's president and chief executive. That revenue should grow 50% again this year.
Robert DeAngelis, the executive vice president in charge of the consumer segment at KeyBank, which encompasses a range of businesses, including the branch channel investment unit, said the results "show that we are better meeting clients' demands."
The business, which typically caters to those with up to $500,000 of investable assets, has about $4.5 billion of assets under management, according to a KeyCorp spokesman. In 2006 the company sold the McDonald branch network to UBS Financial Services but retained ownership of the trust, wealth management, and private banking business groups.
In recent years several companies have sold the regional brokerages they bought in the 1990s. Kenneth Kehrer, the director of the research and consulting firm Kehrer-Limra, said such divestitures make sense from a profitability perspective.
In-house bank investment businesses typically return pretax profits of 25% of revenue, while the brokerages' profit margins are usually in the single digits, he said.
Mr. Vosen said Key Investment Services spent a year and a half rebuilding a corps of nearly 200 brokers. Only 10% of them came from McDonald, with the rest hired from other banking and brokerage companies.
KeyCorp screened candidates for their ability to straddle the brokerage and bank cultures, he said. "The type of financial adviser we are looking for is someone we can 'bankerize,' " and part of the job is making referrals to areas such as trust and lending.
KeyBank has a broker for every $150 million of retail deposits. The average bank's retail investment program has a broker for every $238 million, Mr. Vosen said, citing Kehrer-Limra's research.
Mr. Kehrer said the results Key Investment Services has shared with him suggest its brokers are making inroads rapidly into the bank customer base. The brokers' penetration of KeyBank's base, in terms of revenue per customer household, shows they are performing at a level that is about five years ahead of the norm, he said.
Mr. Vosen, the former head of FirstMerit Investment Services, a unit of FirstMerit Corp. in Akron, credited KeyCorp's careful study of the approaches that had worked and failed at other banks.
In addition to its brokers, the company has 800 platform bankers licensed to sell products such as annuities; many of those bankers are newly licensed as part of KeyCorp's initiative, he said.
Three years ago Mr. Vosen joined KeyCorp at a turning point for the company. The arrangement with McDonald had not worked out because of a cultural mismatch, he said. "Revenue from the bank channel had declined dramatically, and the bank had said, 'After eight years, we are missing an opportunity to serve our customers and bring shareholder value.' "
Mr. Vosen was put in charge of the new unit, which is organized within the community bank model instituted in 2005. Mr. DeAngelis said the approach emphasizes local connections.
Mr. Vosen said that the community banking model replaced a line-of-business structure in which there was "too little cross-selling," and that customer profiling is a pillar of the effort to correct that.
KeyBank's personnel are trained to profile new customers, discuss their needs, introduce potential solutions and make referrals.
