Maybe third-party marketers are not doomed after all.
Five years ago perhaps half of the banks that sold investment products through outside firms were inclined to internalize the business, according to industry experts.
But it now appears that many banks, particularly small and midsize ones, have had second thoughts.
They have decided that running a broker-dealer can be a headache-and cost more than having a third-party marketer do the work.
Indeed, a recent survey of 50 banks, most of them small and midsize, found that three-quarters have no plans to develop their own broker- dealers.
"The expectation was that banks would want to own their own distribution," said Louis Harvey, president of Dalbar, the Boston-based firm that conducted the survey. "As it turns out they are really shopping for expertise, either by buying broker-dealers or engaging third-party marketers."
Central Carolina Bank and Trust, Durham, N.C., briefly ran a broker- dealer about three years ago. But when it bought Security Capital Corp., a Charlotte, N.C.-based bank that used third-party marketer Invest Financial, Central Carolina decided to shelve its own broker-dealer.
"We just thought they brought a lot to the table, including a lot of experience that enhances our probability of success," said Richard Furr, executive vice president and chief operating officer of the bank, a unit of CCB Financial Corp. "That has worked out extremely well for us."
One advantage of using third-party marketers is the experience and industry knowledge they gain by working with many banks and product providers, Mr. Furr said.
They are also well versed in the regulations of many states and represent a fixed cost rather than a variable cost for the bank, he said.
Invest sold almost $7.6 million for Central Carolina last year in stocks, bonds, annuities, mutual funds, unit investment trusts, life insurance, and long-term health-care insurance.
One reason banks are reappraising their need for third-party marketers is that the marketers themselves have changed, said Merlin Gackle, chairman and chief executive of Invest.
"You have got to develop a customized program for each financial institution to make the program fit well with the rest of the bank," Mr. Gackle said. "I think we've learned to work with banks on a better basis."
Banks' change of heart has come in the midst of fierce competition among third-party marketers, spurred by the shrinkage of available business.
After all, 28% of the banks in the Dalbar survey do plan to take their investment businesses in-house.
That continuing trend has been hard on third-party marketers. For example, they accounted for 85% of the annuities sold through banks in 1994 but 69% in 1995 and only 39% last year, according to Kenneth Kehrer Associates, Princeton, N.J.
Mindful of this, many third-party marketers are trying to distinguish themselves from their rivals.
Marketing One, Portland, Ore., has worked hard to develop and promote a Web site for sales representatives, said Kim Spathas, its senior vice president of marketing. They can use the site to look up customer accounts and do on-line product presentation and investment calculations based on individual profiles.
