Not long ago, Placer Savings Bank, a 27-branch thrift in Northern California's Gold Country, wondered whether its brokerage business would ever pan out. Today, the $465 million-asset thrift boasts one of the most profitable investment subsidiaries of any community bank in the nation.

Still, the Auburn-based bank's executives say they feel as though they're falling short. The reason? Every bank's age-old problem of getting front-line employees to refer customers to the investment department.

"We could do better with referrals," concedes James M. McGann, Placer's executive vice president, chief financial officer, and treasurer. "We're working on it."

But holding conferences on how to motivate tellers to snare appointments for investment reps is far preferable to worrying whether the investment department might ever generate acceptable profits. Just six years ago, Placer's brokerage business was flagging. Only a complete turnover of personnel seemed to help.

Since the addition of David R. Davis as manager of the operation, gross commissions have risen steadily. After notching a record $1.1 million gross in 1992, a strong year for mutual funds, the brokerage is on track to post a $900,000 overall take this year, pleasing both Placer and Invest Financial Corp. of Tampa.

Invest has been third-party broker for Placer's investment program since its inception in 1984. Mr. Davis and his salespeople are dual employees of Placer's investment subsidiary, Central Square Inc., and Invest.

"The production levels weren't there," Mr. Davis says of the operation he took over in 1990. "There were a lot of loose ends on how they approached the business."

But after the existing staff left and Mr. Davis - a former E.F. Hutton broker - hired three new salespeople, the department turned profitable in its next year. In fact, Placer's investment department has recently turned pretax profits of about 25%, boosted in part because Mr. Davis trimmed his staff of reps by one this year, choosing not to replace an employee who left for personal reasons.

What's more, through the first eight months of this year, the investment arm has accounted for 12% of all Placer's service-charge revenue. "Nothing compares to it," Mr. McGann says.

Such enthusiasm about a community bank investment program doesn't surprise consultant Roger Thomas. What does surprise him is that the overwhelming majority of community banks have no brokerage business at all.

"When I talk to CEOs of community banks," says Mr. Thomas of Thomas Marketing in Columbia, Mo., "they are usually extremely pleased with their investment business as a stream of revenue. But on the other hand, there are a lot of organizations stuck with bad reps out there that aren't doing well. You've got to have full-time professional people on commission."

The estimated 60% of community banks that don't have a brokerage are leaving money on the table, Mr. Thomas says. "There's a huge, huge opportunity for third-party marketers" such as Invest and Investment Centers of Bismarck, N.D., to tap, he says.

Mr. McGann agrees. "It's produced steady profits and positive cash flow for us," he says. "You'd be remiss if you didn't at least explore it."

Much of the turnaround in Placer's investment department is attributable to stronger marketing. Mr. Davis adopted frequent portfolio reviews, tapping existing clients for investments in other products. Today, nearly half of Placer's investment sales are to existing customers.

Mr. Davis also relies on direct mail to reach noncustomers of the bank. Using Invest's lead-generation program, called InvestLink, Placer sends five pieces of promotional material to prospects before following up with a phone interview. And Mr. Davis and his crew also piggyback on Kemper Funds' Best Years magazine. Targeting baby boomers in Placer's market on its back cover, the publication refers readers to a Placer representative.

In addition, Placer's reps hold client seminars about six times a year, speaking to groups of as many as 50.

But the best source of new clients remains referrals from the savings bank's employees, Mr. Davis says. Unfortunately, that also is Placer's biggest marketing challenge.

"The main bloodline of any bank's production is the referral program there," Mr. Davis says. "We've done a good job, but we've got room for improvement."

Placer concedes it doesn't pay front-line employees the bonuses bigger banks do. In fact, until last year, it offered nothing. But in August 1995, it adopted a program in which branch employees, mainly tellers and other customer-service representatives, got $5 for referring a customer who kept an appointment with a Placer investment counselor. Last month, it raised the ante to $10.

"It's definitely been noticed," Mr. McGann says, "but it's too early to tell what impact it will have."

In addition to that bounty program, annual incentives are offered at the regional and branch levels for overall referrals beyond a minimum target, Mr. McGann says. Branch managers are steadily reminded to funnel new prospects to the investment subsidiary, he adds, and Mr. Davis often holds coffee-and-doughnuts sessions at branches to motivate tellers.

"We try to help them understand what to look for, what to listen for," Mr. Davis says. "Anybody who complains about low interest rates, or who's unhappy about needing a check to pay the IRS, or who mentions they're retiring, they're the ones we need to see."

Placer's older, conservative investors prefer the thrift's line of mutual funds, which account for 50% of all investment sales. Annuities, whether fixed or variable, are next in line, with 36% of the volume, followed by bonds, at 10%, and individual stocks, at 4%.

Mutual fund families such as Van Kampen and American Capital, Putnam, MFS, and Kemper are offered.

Mr. McGann and Mr. Davis acknowledge that Placer's investment program may have reached its peak. While there's still some growth to be achieved by a more efficient in-house referral system, they say, investment volume can be fueled further only by geographic expansion.

The bank's board of directors has kicked around the idea of a trust department that might broaden Placer's market for investments, but Mr. McGann insists that's still in the exploratory stage.

"We think we've kind of plateaued for a while," he says.

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