Wedbush Morgan Securities Inc. is getting into the third-party marketing business, even as banks discard "brokers for hire" and turn to marketing their own securities.
The Los Angeles-based broker-dealer has hired Brewster Ellis, the former president of Raymond James Financial Inc.'s financial institutions marketing division, to run a Kansas City, Mo.-based division that will sell investment products through banks.
Wedbush's move comes at a time when more and more banks are bringing their brokerage programs in-house. Bank of New York Corp. and Webster Financial Corp. of Waterbury, Conn., both scrapped their third-party programs last year.
And larger banks at a rapid clip are acquiring community banks - the target market for most third-party providers.
Mr. Ellis said the influx of new banks and an increase in the number of investment advisers working with banks as independent contractors will drive new business. Wedbush, he said, will have a big advantage over the competition, because it can clear its own trades, enabling it to offer more attractive prices.
Most clearing firms charge brokers a fixed charge per ticket - usually $20 to $50, depending on the type of investment product sold, he said. Third-party marketers pass that charge along to their bank clients and then typically add a percentage of the amount of the trade, he said.
Because Wedbush is self-clearing, it will simply charge a per-ticket fee of around $20, eliminating the percentage charge. The firm will give banks about 90% of commissions, a rate that is common in the industry.
Few other third-party marketers clear their own trades - PrimeVest Financial Services Inc., a St. Cloud, Minn., subsidiary of ReliaStar Financial Corp. of Minneapolis, is another one.
Wedbush will also offer an unusual pricing structure for on-line trades. Rather than offering a set commission rate for trading on-line, the company will allow its financial advisers to negotiate prices directly with their customers.
The idea is to enable financial advisers to match the competition's prices. Mr. Ellis said. The resulting increase in order flow should decrease Wedbush's costs, he said. Statements can be customized to show the bank's name in addition to Wedbush's, Mr. Ellis said.
With an estimated 100 third-party marketing firms vying for clients, competition is fierce, especially for new challengers, said Richard Ayotte, chief executive officer of American Brokerage Consultants in St. Petersburg, Fla. "Banks look for experience," he said.
Mr. Ellis - who left Raymond James in August when the company announced plans to move its financial services division from Kansas City to St. Petersburg, Fla. - has pulled together an experienced team. He has hired 10 employees who worked with him at Raymond James and left around the time he did.
Wedbush has not signed contracts with any banks yet, Mr. Ellis said, but it is "in active conversation" with about 25 potential clients. He did not deny that some of those banks have been clients of Raymond James.
For now, the group is fine-tuning and testing its systems and procedures, but Mr. Ellis said he expects to have the first bank "operational, functioning, and happy" by June 1.
|Top 15 Securities Sellers through Banks, |
Ranked by dollars invested in 1999 (dollars in millions)
|Rank by Total Invested Dollars||Company||Total Investment Products (1999)||General Securities (1999)||Total Dollars Invested (1999)||Total Investment Products (1998)||General Securities (1998)||Total Dollars Invested (1998)|
|Source: Kenneth Kehrer Associates; dollars in millions.|