One of the most significant developments in the bank brokerage marketplace in recent years has been the emergence of collateral service providers.
These specialty firms provide an array of support services to the market's main participants - that is, banking institutions of all types, third-party marketing firms, mutual fund groups, insurance companies, and diversified financial services organizations.
The services provided by these small specialty firms span the range of consulting, market research, technology, and program development in such areas as sales and marketing, training, financial and investment planning, and asset allocation services.
Administrative services are also available, including broker/dealer formation, back-office support, and compliance. And "people" help is provided in the form of executive-search and sales-representative recruitment.
Specialty firms are making an increasingly significant contribution to the bank brokerage market's sophistication, maturity, and professionalism.
But since their efforts are generally conducted behind closed doors, their influence is only beginning to be recognized.
These firms have had a profound influence in two areas of bank brokerage: the third-party marketing industry and bank investment services.
They have been particularly important in helping banks determine how to compete with other financial intermediaries who are trying to win their share of retail investment dollars.
Level Playing Field
In the third-party marketing field, there was a time when large, well-funded, manufacturer-owned firms dominated the marketplace, and had a significant lead in the diversity, flexibility, and sophistication of their securities and annuities programs for banking institutions.
While large third-party marketers continue to offer excellent programs and a high level of professionalism, the specialized services and highly innovative products of specialty firms now allow smaller third-party competitors to create programs for banks that are the equal of anyone in the business.
This development has really leveled the playing field in the third-party arena.
The large, once dominant firms still have the edge when it comes to the longevity of many of their banking relationships.
Areas of Impact
But offsetting that strength is the propensity of the smaller third-party firms to be more "product-neutral."
And now, thanks to the specialty firms, smaller third-party firms can be equally sophisticated in their approaches to garnering bank customers's assets and increasing transaction fees.
Let's examine the areas where specialty firms are having their greatest impact.
One of the most significant areas is helping consumer plan their financial lives - that is, helping them choose appropriate investment objectives and suitable investments.
In the last analysis, garnering assets is the name of the game. Never in history has the institutionalization of retail money been so pronounced.
Anyone who can help a banking institution become more proficient in this process is, in the long run, going to have a profound influence on the way the market operates and evolves. Specialty firms are doing just that.
Controlling Their Destinies
Many banks want to operate their own independent investment services programs.
Using specialty firms' services, banks are now the best equipped they have ever been to do their "own thing" and control their own financial/investment services destinies.
They can now design and build investment services operations internally that are fully in keeping with how they see themselves as bankers, and the kind of banking institution they wish to create.
Fear of the Process
Let's look at a specific illustration. We'll assume you're a bank. You've been in the investment services business for several years through a third-party firm. While this relationship has been generally good, the maturity of your program now allows you to feel quite confident about internalizing your investment services program.
In addition, cultural differences with your third-party affiliate and other irritants indicate that bringing the program "in-house" is both desirable and timely. Fear of this process, however, is responsible for months of procrastination.
Help Is There
Fear not. There are specialty firms that focus on broker/dealer formation and attendance to every detail associated with doing it well. This activity is not their sideline; it is their core business.
Your involvement as their client represents the drive of a piston or two of a for a short period of time in machine that is already well oiled and broken in with the mileage of countless banks before you.
These procedures, while continuously fine-tuned, are nevertheless available to you "off the shelf," so the costs are lower than with general consultants.
If you are a bank and you're sure that internalizing your investment services program is right for you, there is no need to be intimidated by the process or to procrastinate.
Plenty of professional help is at hand. And the same can be said for back office support, help with compliance and administration, legal counsel and other support areas. The important thing is knowing where to go.
Focus on Customers
Another critical area of support to third-party firms and to banks involves specialty firms' focus on the problems of individual bank customers.
The essence of financial services competitiveness is to be among the best at analyzing, understanding and attending to the difficulties and problems encountered by your customers.
These are complicated times. One can't pick up a newspaper or a financial page without reading about systemic unemployment, the high cost of education and health care, low, fixed-income investment yields, an historically high stock market and other concerns.
Just offering investment advice to bank customers amid these conditions, is no longer adequate nor competitive.
To appreciate the problems of ordinary and well-to-do investors, just modify the noun "plan" with the following list of adjectives: life, estate, college, retirement, homeownership, financial, investment, income, inflation, and so on. You get the picture.
Elevating Your Image
As banks and third-party marketing firms, you are part of the picture, and you obviously need to be perceived as providing the lion's share of the solution.
Here too, help is available. There are specialty firms that focus on identifying these kinds of personal problems and developing solutions that are consumer friendly and easily integrated into a banking environment.
A key element in all this is the design of delivery mechanisms which are effective at point of contact (sale) and designed to elevate a bank's image with its customers.
These specialty firms allow banks to compete on a legitimately equal footing with the national investment house and anyone else in the business who is trying to attract the attention of bank customer.
Specialty firms provide sophisticated point-of-sale materials, software (much of it interactive), training, and a variety of other support services and materials for sales reps and customers that are designed to help banks write business and compete with anyone.
One cannot examine the financial challenges facing today's consumers without appreciating that once sensible planning has been accomplished in the applicable areas outlined above, asset allocation, assuming adequate or potentially adequate assets exist, becomes the most important element in providing workable solutions.
Any financial services intermediary these days who can't help customers make reasonably intelligent decisions about such matters as liquidity, income, death, and taxes is really not part of the modern game.
Mr. McConnell is senior partner with American Brokerage Consultants. This article is the first of two parts.