In the race to market investment products through community banks, the little guys are starting to look like the pace-setters.

Regional and local brokerage firms are challenging the big mutual fund marketing companies that have long dominated the business, industry watchers say.

"Big isn't necessarily better," said Michael Gibson, chairman of Miami County National Bank of Paola, a $115 million-asset institution in Kansas.

He recently signed up with Robert Thomas Securities, a regional brokerage based in St. Petersburg, Fla., that has found a niche in serving community banks, even outside its area.

Taking the Local Route

Other regional brokerage firms making inroads with small banks include LPL Financial Services, San Diego, and the MMAR Group, Houston.

The biggest marketing companies have pursued big banks' business with such gusto that they have developed a reputation for overlooking small ones.

As a result, community banks that want to sell investment products are turning increasingly to local financial planners and brokers, according to Stephen E. Gibson, managing director of retail marketing, Putnam Financial Services, Boston.

"It's really almost a bottom-up phenomenon," he said.

A Shift in Emphasis

Thousands of community banks - institutions with $1 billion or less in assets - are just beginning to eye the investment products business, according to Richard Ayotte, senior partner with American Brokerage Consultants, St. Petersburg, Fla.

And as they enter the business, they tend to look for partners on their own scale.

Bigger companies aren't giving up, though. Several are putting a lot more emphasis on courting community banks.

"We see this as a very large area of expansion for us," said Kevin Crowe, chairman of New York-based Essex Corp., one of the industry's leading third-party suppliers of mutual funds and annuities through banks.

"We have put a focus on community banks - more so this year than we ever have in the past," said Merlin Gackle, executive vice president of Invest, Tampa, Fla.

Like other big fund suppliers, the Kemper Financial Services unit is shifting its emphasis partly because most big banks are already spoken for, Mr. Gackle noted. In addition, some large banks are severing relationships with suppliers to set up their own broker-dealers.

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