Q: What effect will NASD's broker-dealer proposal have on your bank's efforts to cross-market mutual funds and other brokerage services?

Bankers and brokerage chiefs are praising the National Association of Securities Dealers' new set of proposed rules for bank brokerages.

In a round of interviews last week, some executives at bank brokerage subsidiaries said the proposals would make it easier for banks to compete against brokerage firms and mutual fund companies.

The proposed rules - amended by the association after a loud outcry by banks in recent months - would allow banks to share confidential financial information about their customers with in-branch broker-dealers.

That's a boon for banks' efforts to cross-sell investment products.

Smaller bank branches would be able to sell investments where retail deposit are taken, as long as the sales areas are well-marked for customers.

The new proposal also will allow banks and broker-dealers to issue joint account statements for customers.

The latest rule changes are seen as vast improvements from last November's proposed rules, which many in the industry had said unfairly restricted bank-brokerage activities as well as conflicting with rules set down by bank regulators.

Despite some lingering concerns, the four executives interviewed said the association's move is a positive one.

And most are playing a game of wait and see. The association is to submit the new proposals to the Securities and Exchange Commission in October.

A public comment period will follow, and there may be some further revisions. Banks can expect the rules to be in force sometime early next year.


Joseph Cooney

President, First Security Investor Services

Salt Lake City

The original NASD 94-94 notice on bank broker-dealer rules would have totally prohibited cross-marketing, so (the revision) is a real step forward as far as bank brokerages are concerned.

We've been operating for the past year and a half or so on the basis of sharing customer information - short of confidential financial information.

As a subsidiary of a bank holding company, we come under Federal Reserve jurisdiction and we're already allowed to share nonconfidential information.

But right now, we have no idea what customer balances are. We don't know whether it's $1,000 or $50,000, or whether that's in a CD or in a checking account.

Once banks get that customer consent, it will clearly open up a new avenue for cross marketing. The information will definitely enhance telemarketing and direct mail efforts and make possible statement stuffers to selected high-balance customers and certain demographic niches.

We are in the process of getting customer approval, and it's a fairly expensive process for existing customers.

But whenever a new bank account is opened, the documentation has an approval in there that will allow sharing of information. They can also say no. But if they don't tell us no, then it's yes.

As to the open door for joint account statements, they are not a big item for us. It takes a big leap of technology to do that. Frankly, we've got other fish to fry in terms of technology dollars before we get into that.

Besides, I haven't seen a combined statement that really appeals to the layman.

Most brokerage statements are pretty confusing as they are - marry that with a bank statement and you've got the potential for a pretty confusing document.


Ronald Szejner

President, Transfinancial Investment Services

Bowling Green, Ky.

I think it really is to the benefit of investors that the banks are able to share account information with their brokers, particularly if you're in a community where the client really expects the investment salesperson to have full knowledge of their information with the bank.

That expectation causes frustration presently because of the barriers to sharing information.

Clients want to see a complete picture of their relationships rather than pieces from the various units. To that end, providing joint-statements would be very positive for both the investor and the provider of investment services.

While I believe there is a long-term benefit to both the banks and their customers, I think that there's still some work to be done.

Having access to a customer's information unto itself doesn't solve everything. There still is the problem of linking the databases and the clients' expectations.

It appears to be a wise action by the NASD, but look at all of the hurdles we've encountered over the last 10 years to be able to do all this. I'm encouraged but I'll believe it when I see it.


John S. McCune

President, Norwest Investment Services


The newest development are all very positive.

It appears NASD has been moving to resolve the potential conflicting rules. Had they not resolved the conflicts, it would have been a question of whose rules banks should follow.

If NASD, for instance, had said bank brokerages couldn't use account information, even with a customers consent, that would have tied our hands. We would have had a more difficult time finding out which bank customers the brokerage unit ought to be calling on.

By being allowed to look at customer account information You can do more targeted marketing.

We can create lists of names we can contact via telephone or mail campaigns based on information as simple as a zip code, income level, net worth, or what investments they've already made.

Now we would probably like to combine the brokerage-account and bank- account statements at some point. But it's academic because we feel at this point that the cost to bring those two systems together isn't worth the benefit.

I don't hear an overwhelming clamor from my clients to provide all that all on one statement.


Jack Kopnisky

President, Key Investments Inc.


The most important thing that this type of ruling would enable us to do is maximize the use of the bank's customer base.

I'm surprised by the proposed ruling because NASD has moved from a position that was pretty tough on this issue to one that is more in line with the direction we want to go in.

Bank brokerage firms and the retail banks have traditionally been at arm's length.

This ruling enables our bank employees and brokerage people to understand both sides of the business so we can collectively solve customers' needs.

We're doing a lot of what the proposed rules allow anyway. We're accessing a lot of the bank data bases which tell us which customers have high propensities to invest.

We're then going out to those customers and saying, "We have a brokerage unit that provides this type of service and if you're interested you can do this."

Some states are more restrictive than others regarding the sharing of account balances and types of accounts a customer has.

NASD's proposed ruling may encourage those states to take a second look at this.

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.