The death of Glass-Steagall has given life to new integrated financial services firms. What does it mean for the future? Reps at bank-owned firms have some insights into the emerging era of one-stop shopping.

SSB brokers sold $2 billion worth of Citibank mortgages and loans during 2000.

On April 6, 1998, Travelers Group and Citicorp broke the news of their groundbreaking merger. The move helped shatter the Glass-Steagall Act of 1933, which prohibited banks from combining with securities firms, and the 1956 Bank Holding Company Act, which put a wall between banks and insurance companies.

Sanford Weill, then CEO of Travelers, pioneered the deal. He was betting that a provision in Glass-Steagall providing a five-year window to operate would give him time to get the laws changed.

Weill's bet paid off when the Gramm-Leach-Bliley Act was passed in November 1999. The act dissolved Glass-Steagall barriers and cleared the way for a new financial services culture rooted in cross selling a broadened array of products.

In Citigroup's annual report, Weill, now chairman and CEO, says the firm's multiple distribution channels, expansive global presence and unparalleled scope of financial products and services creates “cross-service opportunities” unavailable to any other company in the financial services industry.

And First Union Chairman Ken Thompson, in the firm's annual report, says the “combination of bank and brokerage, coupled with multichannel distribution, is virtually unique in its ability to meet the overall financial needs of today's customers.”

The execs' statements are heady and historic, but reps actually working in the post-Glass-Steagall environment have a more mixed assessment. Some report positive experiences with, for example, mortgages, while others see expanded product lines as a distracting hassle.

Newcomers Bristle

It seems reps new to integrated financial services firms are more skeptical about cross selling. A former J.C. Bradford broker who came to UBS PaineWebber when Paine Webber bought Bradford in August 2000 says he's still looking cautiously for any signs of cross-selling opportunities with UBS.

“I haven't noticed a thing,” says the Kentucky-based rep. “They said it was their intention to leave us alone, and they're doing exactly that.”

And that's just fine with him. Clients aren't interested in applying for mortgages or life insurance through him — and he isn't interested in offering the products.

“Never have, never will,” he says.

A former Everen Securities producer who joined First Union Securities when First Union bought Everen in 1999 says his attempts at cross selling have been hampered by First Union's red tape and bureaucracy.

“I can't really sing the praises of the financial supermarket,” says the Midwest-based rep. “First they send me to my InfoMax [workstation], then the Intranet site.” Those new tools and turnover among support staff make it “almost impossible to find an answer,” he says.

Merger Vets Optimistic

But ask a broker who has been working under the banking umbrella a little longer and you'll hear a different perspective. Are brokers seeing any of the opportunities that bank execs promise when they buy brokerage firms?

“Absolutely,” says a veteran broker with Salomon Smith Barney in central Florida. “And they're not asking us to dress like bankers, talk like bankers or do anything else you hear about brokerage firms bought by banks,” he says, with a laugh. “We still have the autonomy to serve our clients the best way we see fit.”

In fact, SSB brokers sold $2 billion worth of Citibank mortgages and consumer loans during 2000, plus another $1.8 billion worth of annuities from Travelers, according to Citigroup's annual report.

Although financial supermarkets are still in their formative stages, bank-brokerage combinations work, the SSB producer says. “The real advantage of having a brokerage firm and a bank together is that we are able to create products specifically for brokerage clients so that the assets won't leave Smith Barney,” he says.

For example, Travelers created a no-load annuity in 1998 called Travelers Marquis Portfolios. The annuities were developed specifically for SSB's retail clients. SSB and Citibank Mortgage also worked together to develop the Preserved Asset Mortgage program in April 1999. It allows a client to borrow up to 100% of a home's value by pledging assets in an SSB account instead of making a cash down payment.

These lending products have been received well by the retail sales force, the broker says. Roughly half of the reps in his branch are offering information about Citibank mortgages to clients, he says.

“I've referred maybe four people in the past six months,” says the veteran producer. “Every client I have referred has at least made the phone call. And every broker I've spoken with has had a good experience.”

Training for Success

In the more than three years since U.S. Bancorp bought Piper Jaffray, the firm has been focused on highlighting cross-selling opportunities, according to Kim Jenson, director of integration, learning and development at U.S. Bancorp Piper Jaffray. By the end of 2001, roughly 800 of its 1,100 financial advisers will have received training on selling loans, credit lines and mortgages with U.S. Bank, she says. Reps receive a $500 flat fee for mortgage referrals, she says.

“I can't really sing the praises of the financial supermarket.”
First Union Securities broker

“Brokers are able to solve needs they were not able to solve before,” Jenson says. “In the past, they could execute on the investment side very well. Today, they can execute on the credit and mortgage front as well.”

About 80 Piper Jaffray brokers attended a company-organized conference in New Orleans in April 2001. The theme was “The Power of Two” — how brokers can leverage U.S. Bank resources, Jenson says.

“We see enormous opportunities,” Jenson says. Only 20% of Piper Jaffray's high-net-worth clients have a relationship with U.S. Bank. “I think our financial advisers are also hoping for referrals from the mortgage people as well. So, we have business going both ways.”

Since the merger, U.S. Bank created a cash management account called the Prime Account, which allows Piper Jaffray clients to make deposits or withdrawals from their brokerage accounts inside a U.S. Bank branch or at an ATM.

“My clients tell me that if they need to take money out of their investment account while on vacation, they can go to any ATM and access their account because of the bank,” says Larry Hoyme, a producing manager with Piper Jaffray in Sioux Falls, S.D. “They did not have that kind of service before.”

Seeing Client Benefits

First Union Securities rep Joe Montgomery had some serious reservations about arranging loans and mortgages when he joined the firm as part of its Wheat acquisition in 1998. “I could hardly spell the word mortgage before that,” he jokes.

Still, Montgomery was in the process of expanding into financial planning, so he mailed some promotional letters to his best clients casually mentioning his newfound lending capabilities.

“After the third call from interested clients, it dawned on me there was definitely something going on,” Montgomery says. In 2000, he referred 35 clients to First Union for mortgages. About a dozen of them eventually did deals with the firm. Montgomery expects to double that number of referrals in 2001.

“The revelation to me is that the more sophisticated the client, the more they want account aggregation,” says Montgomery, based in Williamsburg, Va. “It surprised me.”

Although loan referrals don't generate much income (they contributed just $20,000 to his gross production in 2000), Montgomery says the efforts usually pay off in terms of client satisfaction and loyalty. One of the first loans he referred to First Union was processed and closed within a week because the client's assets were in-house, and he was able to set up a collateral account easily.

“The fact that we're holding the assets made the lending process much more efficient,” says Montgomery, a rep for 25 years. “That is an incredible relationship-builder.”

What advice would he offer a broker whose firm has just been acquired by a bank?

“Nobody is thrilled about learning a whole new system under a whole new ownership,” Montgomery says. “But change is inevitable. Go with it. You're not watching a black-and-white television, are you?”

Registered Representative welcomes your comments on this story. Contact Senior Editor Michael Hayes at mhayes@intertec.com or call our editorial department at 800/621-0720.

Timeless Wisdom

April 1991

“The truly successful broker is always prospecting, never allowing his business to stagnate. In each call, whether in a prospecting or servicing mode, he stresses benefits and concepts as opposed to features.”
— Stan Selbst, Selbst Group, White Plains, N.Y.