One year after NationsBank Corp. opened a brokerage joint venture with Dean Witter, Discover & Co., the unit appears to be hitting its stride.

It has expanded its sales force dramatically. It is adding some 6,000 new accounts each month. And it is on track to start posting solid profits.

"We think it's going to be great," exults Vincent P. Walls, NationsSecurities president, and a former head of Dean Wiltter's flagship Chicago office.

Along with the growth, however, have come some new problems. In fact, the venture is starting to attract the very type of criticism that banks fear most as they enter the investment products arena.

NationsSecurities is being sued by a customer and a broker over allegedly improper sales tactics. In addition, a number of its brokers are grumbling about declining commissions and shrinking territories.

Goals Look Achievable

Despite such challenges, Nations Securities may well live up it to its initial billing as a trendsetting business operation, one that brings together a leading retail bank and an established brokerage.

In an interview at NationsSecurities headquarters in Charlotte, N.C., Mr. Walls and executive vice president Charles R. King ticked off a long list of accomplishments since the joint venture was formed in June of last year.

For example, the unit now employs 630 brokers, more than three times the number NationsBank had before the venture. The employees are split between new hires, and recruits from NationsBank and Dean Witter.

NationsSecurities At a GlanceHeadquarters Charlotte, N.C.Business Joint venture of NationsBank and Dean Witter to sell Investment services in NationsBank branch officesOpened June 7, 1993Staff 630 brokersGrowth plans More than 800 brokers by yearendRevenues $100 million (est. for 1994)

The executives said they are on target to reach their goal of nearly one broker for every two NationsBank branches by yearend. NationsBank, the country's fifth largest bank holding company, has about 1,900 branches.

Profit Growth Seen

Mr. Walls said the brokerage should have $95 million of revenues this year. Though profits are slim at the moment, Mr. Walls said that NationsBank and Dean Witter expect to each get $50 million of profits annually by 1998.

Analysts have praised the venture as a smart tactical move.

"It's gotten them up to speed and their people trained at a much higher pace than a startup operation would have been able to do," said Carole Berger, a stock analyst at Salomon Brothers Inc., New York.

Indeed, Ms. Berger thinks the venture could presage a merger between NationsBank and Dean Witter once legal barriers to such combinations are removed.

In the meantime, officials at NationsSecurities are clearly frustrated about the lawsuits.

Such complaints are common enough in the brokerage industry. Last year, more than 5,500 similar cases were settled through arbitration.

Bad Timing

Nonetheless, the criticisms are clearly a setback for a unit trying to establish itself as an innovative leader. And they come at an awkward time; NationsSecurities recently began marketing its services to other large banks. Those banks may get edgy about the legal controversies.

NationsSecurities officials won't comment on the suits, saying only that the firm believes its practices are proper.

But they clearly stem from the brokerage's cross selling strategies.

NationsBank's South Park branch office in Charlotte is a typical example.

Branch employees there participate in telemarketing campaigns aimed at customers deemed attractive targets for investment services.

Leads are referred to a broker in the branch, David M. Hendricks Sr., who says he gets two-thirds of his referrals from bank employees.

"Our banking centers have developed into sales machines," says NationsSecurities' Mr. King.

Customer: 'I Was Misled'

But a class action suit now pending in United States District Court in Tampa, Fla., claims that the cross selling has misled customers, and invited brokers to make inappropriate pitches.

The plaintiff for the class is Leilani Jasinksi Demint, 54, who said she never understood she was dealing with a broker when she moved $60,000 from a certificate of deposit into a bond mutual fund, and promptly lost $1,000. She said she thought she was buying a bond. "I was misled about the whole ball game," she said.

Her complaints echoed those from a former NationsSecurities broker, David Cray, who has filed suit for wrongful termination.

Both suits are being handled by the same Tampa lawyer, Jonathan Alpert.

Brokers Voice Complaints

State and federal regulators have said they are investigating the claims. Privately, senior NationsSecurities officials said they welcome the investigations, since they believe the probes will exonerate the firm.

But NationsSecurities is facing dissent on another front, too.

Many current and former brokers, who declined to be named, are complaining that their commissions are suffering as the firm adds more brokers.

The brokers also said they disliked a new commission structure that gives bigger payouts for sales of NationsBank's and Dean Witter's mutual funds than for other types of investments.

Before the venture, NationsBank gave no such incentives, a point of pride with some brokers, who believed it gave them freedom to sell the best products.

The dissent is leading several brokers that came to NationsSecurities from Dean Witter to contemplate a class action suit for broken promises, though none has yet been filed.

Mr. Walls, the unit president, acknowledged that attrition at the firm is running slightly above what had been forecast. But he said the unit still offers brokers an excellent opportunity.

"We believe our emphasis on long-term relationships with clients, brokers and the company is a nice combination," he said.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.