But not the bad kind. Now that the wirehouse model is kaput, working for a bank has new appeal. The bank brokerage space has come a long way from its free toaster days.

When I told one of my advisor friends I was writing about bank brokerages, he responded, somewhat confusedly, “Why the hell are you doing that?” To most advisors, “bank brokers”—the registered reps commonly referred to as “bank investment consultants” working inside bank branches—well, they are on the absolute bottom rung. On average, they don’t have nearly as much in assets, production or sophistication as, say, their wirehouse or RIA colleagues. To them, a bank rep is a flunky who needs to be spoonfed banking customers—and modest ones at that. Toasters are no longer given out for opening an account (see the Fed’s Regulation Q, better known as “the Toaster Rule”), but the stereotype lingers. (Consider that Goldman Sachs’s CEO Lloyd Blankfein, as a gag, gave former Goldman CEO Jon Corzine, now governor of New Jersey, a toaster with a Goldman emblem on it after Goldman had filed to become a bank holding company.)

It might be time to reconsider that stereotype. “Ten years ago bank brokers were perceived as failed wirehouse reps, but this has changed,” says Chip Roame, managing partner of consulting firm Tiburon Strategic Advisors.

After all, as a result of the credit crunch and ensuing transformation of wirehouses into banks, you’re all bank brokers now. Okay, I’m exaggerating, but those of you who aren’t bank brokers probably tensed up there for a second. You were annoyed at that barb—admit it. While bank reps still trail FAs at other institutions, the gap is narrowing, if ever so slightly, and, with Merrill—and in some form or another, Morgan Stanley and Goldman—being folded into a Citigroup-like universal banking model, a lot of big brains are going to be focusing on how to make the one-stop financial shop work.

In truth, combining broker/dealers with banks is a trend that began in the early 1990s, culminating with the big bang merger that created the Citi/Travelers Group/Smith Barney colossus in 1998. Congress repealed Glass-Steagall, the Depression-era law separating insurance, securities and depository institutions, in 1999. That bit of deregulation allowed Wachovia to launch into a b/d acquisition spree (Prudential, Metropolitan West Securities, A.G. Edwards)—only to be snapped up by West Coast lender Wells Fargo in October. And, of course, the money center banks, such as Bank of America and JPMorgan Chase, have been busy. These firms will be working to blend their traditional private bankers with their financial advisory ranks to create a more seamless experience for banking clients—thereby capturing more client assets.

Indeed, the trend is reaching its logical conclusion—to the point where there aren’t that many stand-alone securities firms anymore. Even the old regional stand-alone b/ds have been mostly acquired over the years (Dain Bosworth, JC Bradford, Wheat First Securities, IJL, Everen Securities, to name a few). Raymond James, Robert W. Baird and Edward Jones are the obvious exceptions, of course.

The attraction of being attached to a depository institution is obvious: Client deposits create a large pool of assets that can theoretically be tapped if capital is tight. Of course, the downside is that commercial banks aren’t as profitable as investment banks, since they can’t legally leverage themselves as much as a Goldman or a Morgan could. (In some ways, Goldman, Merrill and the other investment banks were much like hedge funds, not just brokering trades but risking their own capital—and with leverage, as we have come to fully appreciate. Merrill, for example, had a 30-to-one ratio of debt to assets. Tighter leverage restrictions might be a good thing.)

Depending on how well Bank of America digests brokerage giant Merrill Lynch, the marriage—however hasty—could provide a golden example of how to successfully build a progressive financial wealth management institution. In other words, an increasingly lucrative yet challenging strategy for traditional bank branch networks (see chart above). Not every bank is doing it right, but some seem to be heading in the right direction, and their reps are reaping the rewards.

Stellar—By Comparison

Meet, Patrick Varney, a bank rep and employee of the Bank of Colorado. What’s interesting about Bank of Colorado is its partnership with Raymond James Financial, which allows its 500-plus financial advisors to hang their Series 7s with the b/d and do commission-based business. (Raymond James has a special division that caters to bank brokers called the Financial Institutional Division.) Varney is a walking contradiction to the bank broker stigma. He’s mostly fee-based (over 60 percent), uses actively managed mutual funds and SMAs, enjoys a 40 percent payout (more like a wirehouse than a bank) and employs two part-time sales assistants who help him stay in frequent contact with clients (semi-annual reviews, newsletters and market update letters).

His affiliation—with a bank unblemished by the credit crisis—has helped Varney expand his book of business even as many traditional wirehouse advisors are suffering client defections, he says. Varney started off in the securities business eight years ago as a loan officer before getting his Series 7 license when the bank started an investment program and affiliated with Raymond James. During his first year of business in 2001 (in the depths of the tech wreck), his book grew 25 percent and even stronger growth followed. Varney doubled his production to $1.07 million in 2007 from $527,000 in 2006. Today, Varney manages $70 million for 175 households or about 400 individuals.

“There has never been a better time for bank brokerages, because look at most of the wirehouses … the problems they’ve encountered,” Varney says. “For the longest time when we would compete against a traditional wirehouse, I can assure you our customers always told us we were talked down to because we were just a ‘bank brokerage.’”

But then came the credit crisis. With its attendant disastrous (and nearly daily) headlines mucking up the image of the national brands, it was like a marketing gift to the regional banks (and independents and RIAs). “When you get down to it, a lot of the trust is with the smaller community banks in an environment like this,” Varney says. It’s true. Consumers are opting for the comfort of brick and mortar bank branch networks: Forty percent of consumers have a higher opinion of banks’ trustworthiness than that of stand-alone, full-service b/ds, according to Tiburon Strategic Advisors.

Individual reps’ opinions may change, too. Of course, most bank reps say the biggest pros of working at a bank include the built-in referral network from the bank’s existing clients. Take leviathan Bank of America; its 2,000 financial advisors, and now Merrill’s 16,000, benefit from the bank’s approximately 16.5 million affluent client households—with $100,000 to $3 million in investable assets—or half of all affluent U.S. households. That is just one of BofAs referral pipelines. (There are also referrals from the Global Corporate and Investment Banking unit.) “This enables our advisors to focus on serving clients’ needs as opposed to searching for new clients,” says a BofA spokesperson.

As for the production differences between bank reps and wirehouse reps, the gap really arises because they serve different kinds of clients, argues Kenneth Kehrer, of Kehrer-LIMRA. (Experienced high-net-worth investors tend to seek investment specialists, such as wirehouse reps, financial planners and RIA advisors.) Bank reps will attract increasingly wealthy clients as they continue to improve their offerings.

And those improvements are already underway. Today many bank b/ds—which were historically steeped in the annuity business—have the breadth of products that can be found at any major player in the space; they have open platforms with SMAs, UMAs, alternative investments, mutual fund wrap programs, fixed income, equities, the works. “The folks at the wirehouses, especially in the last 10 or 15 years, focused on building their books around managed money, particularly fixed income, and the banks couldn’t necessarily offer that,” says Howard Hammond, managing director at Fifth Third Securities, a unit of Fifth Third Bank. (Fifth Third’s b/d has 300 reps who manage a total of $9.6 billion AUM in 12 states, mostly in the Midwest and East.) Says Hammond: “Our annuity business is generally only about 30 percent of our business, so we think that really distinguishes us from a lot of our other competitors.”

Still, bank b/ds’ attempts to emulate the large traditional b/ds and adopt more of a wealth management model is a work in progress. Ask any senior level bank b/d executive and he’ll probably agree: Getting the banks’ organizational structures—the trust departments, the private banking arms and the brokerage divisions—aligned correctly is the key to creating the full service wealth management model they covet. “When banks first got into this (b/d) business—most of the major banks got into it in 1990—they didn’t really know how to integrate the b/d business into what they were already doing,” says Kehrer. “Now that you get things like investments or insurance that can be sold across all segments, how do you organize the delivery of those things?

There are these different distribution systems within the bank tied to specific products.”

Some banks have tried to integrate their b/ds with their trust divisions to create a more streamlined distribution system, but bank reps still face challenges of overlapping structures-—mainly in the form of competition with their trust departments for clients.

Fixing The Bank B/D Model
Gean Rea, a 25-year industry veteran, who got started in the business trading stocks and 500 to 1,000 options a day at J.C. Bradford (now UBS) had pretty much seen it all by 2003 when he started as a bank rep at a small regional, Bancorp South. Still, Rea says working at a bank was a serious transition, which paid off after some hard work. After a five-year stint as an independent, Rea went from serving around 100 accounts with around $15 million in AUM at Stern, Agee & Leach in Jackson, Miss., to working on the 700 to 800 accounts totaling $50 million in AUM he covers today. Not only did he have to reestablish the trust of the branch customers and bankers (he was the third bank rep to occupy his post in less than four years), but he also had to learn how to compete with the trust department and insurance divisions.

“Banks are not totally there, but they are making huge progress and have been for many years,” says Raymond James’ Houston. “If banks can successfully integrate their services and do it well they can absolutely blow the competition away because of the capital they have, the built-in customer base and branch network. These are some incredible advantages over a traditional b/d model.”

Take SunTrust Investment Services, which brought on John Rhett, a 20-year Smith Barney veteran manager, in 2001 to take the traditional bank brokerage model (selling fixed annuities and mutual funds) and start expanding the platform and the model. Today, SunTrust Investment Services boasts a total of $40 billion AUM advised by 550 brokers who make up three different groups tied to different customer segments and organizational structures within the bank: investment consultants working in the branches who serve clients with $1 million assets or less; private banking FAs who work in the trust divisions and manage assets for clients with $1 million and above; and private wealth advisors who are million-dollar producers who solely use the bank for back office support.

In addition to integration, bank b/ds have to focus on expanding their rep armies: One of the largest challenges bank b/ds face is recruiting. In fact, Kehrer of LIMRA estimates that the typical bank needs to increase its rep head count by 89 percent to provide clients with optimal service, because these days each bank rep serves way too many clients. That won’t be easy: There are not enough sophisticated reps to go around. Moreover, bank b/ds do not typically have training programs for novice reps, and instead poach experienced reps from other banks, regional b/ds and wirehouses.

Still, many banks say they’re enjoying the spillover from the disgruntled reps of the larger firms recently. Fifth Third’s Hammond says over the last 20 months they have brought in approximately 160 new brokers and half of the new reps came from wirehouses. While bank b/ds won’t pay the hefty upfront bonuses common in the wirehouse space, they will try to sell recruits on how they can expand their businesses on bank b/d platforms. “If we can get that wirehouse rep who has, say, $15 million to $40 million in AUM, and if he can bring 75 percent of his book over, we can give him two or three branches or perhaps a private banker to work with,” says Hammond. “I always challenge them and ask them how they can’t double their business in three to five years.”

While the volatile markets continue to elude the fate of the industry as a whole, the bank b/ds are banking on one thing: Consumers are going to want to consolidate their assets at one institution. If bank b/ds can iron out their wrinkles in time, their reps will be poised to accommodate.