In the first two articles in this series about bank-insurer relationships, we explored what annuity providers want from their bank distributors and what banks, in turn, want from their providers. In this article, banks and providers discuss how they manage their partnerships and when its time to call it quits.
Bank-insurer partnerships almost always begin with a sense of promise a new product line, training, cooperation in product development, expectations of a flood of new sales.
Sometimes, after all the effort, things dont work out. At that point is it better to go separate ways or give it another go?
That depends on whom you ask and the answer doesntbreak down neatly between banks and insurers .
Gregory Vacca, first vice president of Cal Fed Investments, a San Francisco unit of Golden State Bancorp of Palo Alto, Calif., said banks, as a rule, are not quick to cancel relationships. But it happens, and when it does, it is almost always a function of an annuitys sales performance, he said.
If we have six products, five of which are selling well and one isnt, well terminate the unprofitable one, he said. But first wed want to try and understand why it isnt selling. Is it our sales force? Our delivery? Our customers? We would never call someone and tell them [their product is] no longer with us without examining [the business relationship] first.
The extra effort makes sense, given how much work goes into establishing some of the provider-distributor arrangements between banks and insurers. Often the insurers have a stronger interest in preserving the relationships.
If we had given up on some of our relationships back when we werent the preferred provider, we wouldnt have some of our best accounts today, said Matt Riebel, president of Nationwide Financial Distributors Agency Inc., the bank distribution arm of Nationwide Financial Services Inc. of Columbus, Ohio. No way you give up. If our competitors struggle, we can jump in.
Consolidation creates more competition among providers and can threaten relationships. Glen Milesko, chairman of Banc One Insurance Group in Milwaukee, takes the tack of managing down his shelf group.
His six-product annuity shelf includes providers such as Nationwide, American General, Aegon, and Glenbrook Life, and he does not want to expand meaning he will generally not keep an acquired banks preferred provider list for annuities.
If the top-40 banks are managing down their relationships and then they also merge, it becomes very competitive, said Bruce Ferris, vice president of investment product sales at Hartford Life in Simsbury, Conn.
Thats where things are at right now in the industry, he said. Sometimes your relationship is with the acquired bank, and the acquirer has a relationship with someone else and will let you go. But you keep at it. You always call on them. You never let that business walk away.
Thats just fine by Mr. Milesko, who said he prefers to stay in contact with those squeezed-out providers. We encourage those providers to keep calling on us, he said. We dont want to rule anyone out. We want to know whats out there.
Evaluating when a partnership is yielding too little return to continue does not always lend itself to a simple push product/limit shelf space analysis. But for any banker looking to optimize the product mix, sales figures are hard to argue with.
Lack of sales in a particular product indicates that either the product wasnt competitive or its wholesaling wasnt effective, said Paul L. Merritt, senior vice president and national insurance coordinator for Banc of America Investment Services Inc., in Charlotte, N.C.
The Bank of America Corp. unit has a specific procedure it follows to determine whether to keep or shed a provider.
We send surveys to the field, so we can get feedback on the wholesalers, and see how helpful [the insurer] has been to the reps, Mr. Merritt said. Then we look at the sales numbers. Well put the results on a matrix, look at the Dalbar [service] reports, and then make a decision if a company is worth having a primary relationship with.
Most of it isnt black and white, though sales are very important as close to black and white as you get, Mr. Merritt said.
For Tom Howe, president of Webster Investment Services in Waterbury, Conn., a specific annuity, as well as its performance levels, can make or break his relationship with a provider.
We review all of our products and track their investment performance, he said. On the fixed side, we also watch the providers ratings. Those annuities whose investments do not yield a sufficient return for two straight quarters will undergo further scrutiny, and could get removed.
One way to buy loyalty is to invest early in the relationship. Mike Harkins, first vice president of brokerage services at the Peoples Securities Inc., a unit of Peoples Mutual Holdings in Bridgeport, Conn., says he values a provider that takes the time to cultivate and nurture its relationship with his bank.
Mr. Harkins, whose unit works with several providers, including The Hartford, said he once dropped an insurer from his preferred list because its wholesaling methods were too cookie-cutter for his taste.
Each bank is different, he said. If an insurer doesnt have the ability or interest to work with a bank individually, the relationships not going to work.
But that approach carries a different risk: Measuring up to expectations. And sometimes its the insurer here who feels let down.
A huge up-front effort to train the banks sales staff and create sales materials can spark an immediate demand for high sales volume, Mr. Harkins said. If that doesnt show up, providers can lose interest in the bank, he said.
Thats a mistake, because building sales takes time, and losing patience is wrong, he said.
Likewise, Mr. Ferris said insurers get themselves in trouble with banks by promising too much and leaving banks disillusioned when the results fall short.
Were very careful about making promises we cant keep, he said. Companies new to the bank channel might make those promises, and it works against them in the end.
Throughout the process, many executives monitor the partnership and look for ways to nudge it forward to a point.
Phil Holstein, managing director of the financial institutions division of Lincoln Financial Distributors, the bank channel conduit for Lincoln Financial Group of Philadelphia, said there are times its relationship with a bank can hit a wall.
If were making all sorts of suggestions, and the bank isnt paying much attention to us if they have a great relationship with another provider and dont seem interested in us well back off, he said.
Lincolns top-selling banks usually get the most attention, Mr. Holstein said. Thats where you have to have focus, but it doesnt mean other relationships arent important.
For a provider, the health of its relationship with a bank can have more to do with how much the bank sells than with whether the provider is the most important one to the bank. Sometimes we may have been way down on a banks list, but it was big for us, he said.
Michael White, president of the Radnor, Pa., consulting firm Michael White Associates, said the competition to get onto shelves makes it tough for annuity providers to give up on any relationship.
You always have to fight for more, Mr. White said. Otherwise youre not going to see growth. Sometimes being the third- or fourth-largest provider at a bank is still productive, because the bank is a successful distributor of the product. Being fourth is better than being first at a bank that isnt as successful or as large.
Thats why even the largest providers fight to stay with the banks where they are not top distributors. Glenbrook Life and Annuity Co., a division of Allstate Financial Group in Northbrook, Ill., has relationships with approximately 100 banks, but it is either the top or No. 2 seller in only 10% of them.
While you operate under the philosophy that you want to be No. 1 in every bank, realistically, youre not going to be, said Rob Shore, Glenbrook Lifes senior vice president of financial institutions.
Being No. 1 in only 10% of his banks is not acceptable down the road, but if we dont work hard at the bank relationships where were not the top provider, were not going to gain a larger share, he said.
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