The companies that help banks sell investment products lost business at large banks last year but partly offset the loss through contracts with community banks, a study shows.
The 20 largest of these firms reported a 4.4% decline in investment product sales, according to Richard Ayotte, president of American Brokerage Consultants Inc., St. Petersburg, Fla.
He attributed the decline to a falloff in business from larger banks, which in recent years have assumed control of brokerage operations that support firms used to run.
However, Mr. Ayotte noted, several marketing firms that court community banks actually increased sales.
Currently, 80% of the banks served by the 20 top marketing firms have less than $1 billion of assets. "The long-term prospects for this industry lie in serving the community banks," Mr. Ayotte said.
Investment marketing firms have been looking for ways to remain useful to the banking industry.
Mr. Ayotte said much of the industry's sales decline came from just three firms: GNA Corp., down 61.4%; Marketing One Inc., down 31.5%; and Essex Corp., down 23.7%. Their sales fell $2.7 billion.
The total for the 20 companies was off $821 million. It was up 16% for those excluding GNA, Marketing One and Essex.
GNA was hit hardest because its clients PNC Bank Corp. and Chase Manhattan Corp. took over the contracts of GNA brokers in their branches.
GNA insists that those banks are still selling its mutual funds and annuities, but the sales don't show up in Mr. Ayotte's data, because the company no longer employs the brokers.
Other firms that lost big revenue-producing banks in recent years are still feeling reverberations. Marketing One, for instance, which lost Wells Fargo as a major source of fixed annuity sales in 1994, saw sales of that product decline 53.5% in 1995.
"The silver lining in all this is that there are 7,000 banks that are still not in the brokerage business," Mr. Ayotte said. "These firms have to reinvent themselves so that they can get that business."
But not all agree that community banks, which generally employ a tiny number of brokers for a small customer base, can generate enough revenue to offset the loss of big-bank clients.
Marketing One, for example, had more than 100 savings and loan clients back in 1990. But its expenses were just as high then as later, when about half its sales came through Wells Fargo & Co., said Paul Patsis, the marketer's chairman and chief executive.
"Just because a bank is small doesn't mean it doesn't expect the same quality service," Mr. Patsis said.
His company recently landed Standard Federal Bancorp., Detroit, a $13.3 billion-asset bank from which it hopes to generate more revenues. But the current interest rate environment isn't favorable to fixed annuities, so Marketing One continues to struggle.
"We've responded by cutting expenses," said Mr. Patsis, and today the company is profitable. Marketing One is currently slashing its work force by 13%.