A $1 billion-asset Massachusetts bank is trying to cut the rope on an internal tug-of-war over investment customers.

Cape Cod Bank and Trust Co. of Hyannis has dismantled its full-service brokerage, melding some of the functions and staff members with its trust department under a new banner, personal investment management.

At the same time, it has launched a discount brokerage and shifted the remaining full-service brokerage employees there.

The changes, which took effect July 1, should help the bank serve a wide range of clients while eliminating competition between its brokerage and trust operations, said Robert T. Boon, chief trust and investment officer.

"Now we have two distinct roles, and there's no more conflict between the entities," Mr. Boon said.

Community banks are increasingly adding brokerage operations to complement trust services. But by doing so, they open themselves up to two distinct challenges: rivalry between departments for the same customers and competition with national brokerage firms.

"They simply can't compete with the Merrill Lynches and Smith Barneys of the world on brokerage," said Burton J. Greenwald, a Philadelphia financial services consultant.

One way for small banks to remain competitive is to fold their brokerage operations into trust departments where most services are already fee- based, Mr. Greenwald said.

"For a small bank it's a realistic way to go," he said.

Those who want to retain separate operations have options too, said Kenneth Kehrer, a consultant in Princeton, N.J. Wells Fargo & Co., San Francisco, for example, has designated a relationship manager who refers customers to the proper members of a team that includes bankers and brokers. Another bank hired one person for two jobs. That is, asset manager and broker, he said.

Either way, banks should consider increasing their use of fee-based products, which after three years produce more revenue and "bind the customer to them more," Mr. Kehrer said.

Cape Cod's personal investment management group offers customers an "adviser account," which lets them buy mutual funds, stocks, and bonds for a 1.25% annual fee, with a minimum fee of $500, Mr. Boon said. Though the account is fee-based, he added, products cannot be bought without a customer's consent.

Personal investment management has 34 employees, four of whom transferred from the full-service brokerage, CCB&T Investment Co., which was begun in 1992.

The group has $1.2 billion under administration. Six remaining brokers joined the new discount brokerage, CCB&T Brokerage Direct. No jobs were lost in the reshuffling, Mr. Boon said.

Previously, the trust department focused on customers with at least $250,000 of liquid assets. Now, with trust and brokerage combined, the expanded group will be able to serve all customers who want investment advice, Mr. Boon said.

An added bonus for the bank is that retail employees will no longer be confused about where to refer potential customers, according to Mr. Boon. "There's only one place to go to get investment advice, and that is our trust and investment group," he said.

Geoffrey H. Bobroff, a consultant in East Greenwich, R.I., agreed that fee-based products make sense for banks in today's marketplace. "The only caution is: Has the bank equipped itself properly to be able to go after that market?" he said. And that, he added, only time will tell.

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