Are Hybrid Sales Teams the Answer

In part one of a two-part report, we look at the advantages of broker/banker investment sales programs At a time when the investor s business has never been more prized, more banks are supplementing their existing full-time investment staffs by training and licensing their platform banking staff to sell annuities and mutual funds. Forty-six of the 60 largest retail banks sell investments through licensed platform bankers instead of relying on brokers alone, and at least two of the remaining 14 are actively studying this option. As banks rush to create these sales forces, keep in mind just what their key objectives have been--higher margins and wider distribution chief among them. Why banks license bankers Banks are turning to branch bankers to sell investments primarily as a way to cut costs: the acquisition cost of selling annuities and mutual funds through licensed bankers is significantly less than through full-time Series 7 brokers. According to the Kehrer-Essex Bank Investment Program Benchmarking Study, the typical bank retail investment sales unit that sells only through fulltime brokers pays out 38% of its investment sales commission revenue to those brokers. While that's less than nonbank brokerages pay out for the same services, it s still four to eight times the amount that bank broker dealers pay to licensed bankers in sales incentives. (See top chart on page 56. Licensed bankers typically earn about 5% to 10% of the commission revenue their sales generate.) These lower sales or acquisition costs translate into higher profit margins. Our study results show that the revenue margin of hybrid investment programs is six percentage points higher than the 25% achieved by the typical broker-only program. The few banks that sell only through licensed bankers achieve revenue margins almost three times that of broker-only programs. Coping with attrition Banks also are turning to their branch platform staff to sell investments because it's the fastest way to substantially increase the number of investment sales people, or distribution points. In the 15 or 50 years that banks have been offering retail investments, they have struggled to build their sales forces. According to last year's CBA Consumer Investments Study, 80% of the banks indicated that recruiting additional brokers was difficult. Half of those reported that recruiting was very difficult, and only 2% were not trying to increase their sales staff. Compounding the recruiting problem is broker attrition; last year a typical bank broker-dealer lost 16% of its brokers. While some of the this turnover is the result of brokers being asked to leave, by and large it is the high performers who are jumping to jobs with nonbank securities firms, or even other banks. Still, it should be noted that broker turnover has actually improved since 1994 and 1995, when it was running at an annual rate of 21% in bank brokers dealers. But it is still an issue. By licensing bankers, bank investment services programs can quickly increase the number of sales people, in many cases to five or ten times the current level. Keeping the customer A related advantage in licensing bankers is that it reduces the need to hand off prospects to a broker who's roving among branches, and not available on a given day. In fact, the typical bank has one full-time broker for every $219 million in retail deposits. With an average branch size of about $45 million, that means that the typical broker has to handle the business of five branches. If the broker makes the usual circuit around these branches, he or she may occupy any given office only one day a week. A bank with a customer interested in investing, then, risks the chance that he or she will go elsewhere in the time between the initial walk-in visit, and when the bank can locate the broker's availability and arrange the referral, and finally when the broker arranges a meeting. …