Bank Investment Consultant
Wachovia Corp.'s brokerage arm has garnered some media attention since announcing it would buy A.G. Edwards & Sons Inc. a couple of months ago, but maybe Wachovia's bank brokerage unit deserves its share of notice.
With 1,260 financial advisers and 2,500 licensed financial specialists, the investor services group is among the nation's largest and most successful bank broker-dealers.
The unit reported almost $136 billion of assets under management through March 31 and is growing faster than either of Wachovia Securities' other brokerage channels — the wire house, or private client group, and the independent Wachovia Securities Financial network.
Though the Charlotte banking company does not break out what its financial results for these channels are, in a first-quarter earnings conference call on April 16, the president of Wachovia's capital management group, David Carroll, to whom all brokerage divisions report, described "record investment sales and referrals from the general bank and our bank brokerage channel."
The bank channel "doesn't get a lot of conversation," Mr. Carroll said. "But it will top $1 billion in revenue this year and has margins north of 40%. So the partnership between the brokerage company and the bank is working the best it ever has been. And as the bank expands in Texas and California, that channel will grow right along with it."
To make sure Wachovia's bank brokerage programs thrive, and to prepare for the onslaught of retiring boomers, in March the company added two programs to its already service-rich platform for advisers.
One of the programs, called 4front, ties advisers' bonuses directly to client satisfaction, and the other one aims to make it easy for advisers to offer sophisticated loan services to their clients along with investments.
Meanwhile, Wachovia has established a presence on the West Coast with its acquisition last year of Golden West Financial of Oakland, Calif.
"This is a very competitive business," said Jennifer Thompson, a vice president and banking analyst at Oppenheimer in New York. She said that Wachovia is "not only competing against other banks, they're also competing against pure-play brokers. They're trying to stay relevant in a very crowded field."
The idea with 4front is to increase personalized client contact and elicit advisory behavior, which in turn should bring more assets into Wachovia's fee-based accounts.
4front is optional, but advisers who use it can earn bonuses by building their books of business through increased contact with clients who have assets at least $250,000 and 60% of those assets in fee-based accounts.
Advisers have to contact such clients at least six times a year, including at least one face-to-face meeting. To generate a $25,000 bonus, an adviser must have 25 qualifying accounts and bring in $3 million of new assets.
Double those figures, and the rep will make $50,000. At 100 clients and $10 million of new assets, an adviser in Wachovia's investor financial group will earn $100,000.
To discourage advisers from taking those lucrative clients to another firm, the bonus vests over six years, according to the Charlotte bank.
Rick Zins, a senior vice president at the investor services group, who has a $120 million book, said that about 10% of his client base is in the 4front program and that he hopes to increase that to 50% next year.
The affluent credit services platform unveiled in March is meant to increase cross-selling to wealth clients. It provides advisers with an immediate dedicated phone link to credit specialists in all lending areas.
Dorian Hansen, who developed the platform, left a 17-year career as vice president of distribution and strategy at MetLife to join Wachovia in January as director of banking services.
Ms. Hansen said the goal behind the platform was to provide a package of banking services that was easy for advisers to offer their clients.
Before developing the platform, Wachovia Securities offered real estate lending, but did not have a "process in place to adequately serve our affluent clients and their sophisticated liability management needs," Ms. Hansen said. "I'm all about processes. Everything should be a predictable experience."
She said loan production for Wachovia Securities reached nearly $4 billion last year and that she hopes it will reach $8 billion in 2007.
The platform has been "incredibly well received" in Atlanta and Texas, where it has been introduced so far, she said. She would not give any figures.
Ms. Hansen said her biggest obstacle will be getting advisers to use the affluent credit services platform, which is also optional.
She predicted that 20%-30% of advisers will be early adopters, 50% will be "fence-sitters" who wait to see how the program plays out, and the rest will probably never embrace it.
"I have to get on their shelf and put it in a way that they see its value," she said. "My job is to put a bow around it."
Some observers that were interviewed were skeptical about the new program.
"There's a whole host of cultural issues that have to be overcome to successfully integrate a bank product and a brokerage product," said Nancy Bush, an analyst with NAB Research in Aiken, S.C. "It's a tough sell not only for Wachovia, but also for any bank to try to sell brokerage products."
Beyond the new program, another challenge for Wachovia's brokerage arm is the bank's new foray West.
The parent bank bought Golden West, the parent of World Savings Bank in Oakland, Calif., in October. That deal netted Atlas Securities, Golden West's bank brokerage unit, and entry into the very lucrative California market through the savings bank's 285 branches.
Expanding Wachovia's bank brokerage business in California and Texas is critical to the investor services group's strategy to expand its presence in the bank-brokerage channel.
Mary Mack, the group's president, said it has been "very deliberate" to make sure it is in tune with the parent's growth strategy.
"Our footprint mirrors wherever the bank is investing," she said in an interview.
After taking the helm of the bank brokerage unit late last year, Ms. Mack said she wanted to expand the bank brokerage business quickly and by adding a few hundred advisers this year.
One strength of Wachovia's bank channel is its ability to attract advisers with plenty of industry experience, she said.
"We really are looking for a level of investment talent that you'd find at a wire house or investment firm," Ms. Mack said.
