It was a minor annoyance for the multi-million dollar Merrill Lynch producer. His assistant recently had to spend 20 minutes on the telephone with a Bank of America staffer straightening out a small fee that one of his clients had gotten dinged with concerning his BofA account. Since the client's investment relationship was with the broker, the broker got the call and fielded the complaint. The matter was resolved, but in the broker's mind it was emblematic of a larger issue, one that's on the minds of many advisors whose brokerages have been taken over by major banks. Are my new parent's banking products bad for my brokerage business?

For the Merrill broker, the 20-minute chore of straightening out a bank fee spoke volumes. The bank and brokerage cultures are fundamentally different, in his view, and in some important ways incompatible. “We tried to avoid interacting with them as much as possible. They're not used to serving their clients like we're used to serving our clients,” he says. “You get horrendous support, no support, really. There's no personal accountability on the banker's side.” When a consumer has a problem with a bank, he calls a service center, gets put on hold, and stews. When an investor has a problem with an advisor, “He fires you,” the advisor says.

But for better or worse, the relationship between banker and broker will be growing more intertwined, industry observers say. As everybody knows, the financial collapse in 2008 resulted in Bank of America's acquisition of Merrill Lynch; Wells Fargo & Co. expanded its profile in the financial advisor business through its purchase of Wachovia and its accompanying brokerage unit, Wachovia Securities (now Wells Fargo Advisors). Top managers at both banks have trumpeted their plans to cross-sell products across multiple divisions within each company. Indeed, in an informal online poll Registered Rep. conducted in February, well over half of the advisors who responded said their bank parent “very strongly” wants them to sell banking products.

“I think the days when a retail brokerage force can stand outside the pressures of a bank are behind us,” says Nancy Bush, a New Jersey-based industry analyst. “And these guys are just going to have to accept that it's a brave new world in banking. With all the new regulations that have been put on banks by Dodd-Frank, the pressure on profitability from having to hold more capital as a result of Basel III — guess what? Everybody within the banking umbrella, including retail brokers, are going to have to sell more products.”

The One-Stop Shop Goal

Cross-selling is nothing new in the banking industry. When Sandy Weill created Citigroup in 1998 by merging the insurer Travelers Group with Citibank, it was with the idea of obtaining synergies among the various parts of the new goliath. (Congress helped clear the way by repealing the Glass-Steagall Act, which for decades had separated the depository banking industry from Wall Street investment banking.) But Citi foundered in the 2008 financial crisis under the weight of bad real estate deals, and it required $45 billion in taxpayer bailouts to stay afloat.

Now Bank of America and Wells Fargo are embracing the cross-sell strategy across its brokerage segments. BofA says that the number of client referrals from its wealth management to its markets and banking business has risen 50 percent, to 5,900, from the second half of 2009 to the first half of 2010. Referrals in the other direction — from markets and banking back to wealth management — have risen 250 percent in that time, to 4,800, while client assets moving to wealth management went from $1 billion to $5.5 billion.

Wells Fargo says it sees marketing opportunities with the 2.6 million households that overlap its retail banking business and its Wealth, Brokerage & Retirement unit that includes Wells Fargo Advisors. WFA spokeswoman Rachelle Rowe says that last year advisors in the company's Private Client Group produced $2 billion in new mortgages through Wells' mortgage division; private banking and wealth advisors in Wells branches produced $2.5 billion in new lending, she adds.

For the record, the brokerage business has been good to both banks since the financial crash. Data from Michael White Associates show that securities brokerage fee income made up 16 percent of BofA's total noninterest income in the third quarter of last year, up from 10.3 percent three years earlier, before the Merrill acquisition. At Wells Fargo, brokerage fee income totaled 12.6 percent of noninterest income in the third quarter, up from 8.38 percent.

“I think the idea of cross-selling is very much in the DNA of banks,” says Bing Waldert, an industry analyst at Boston-based Cerulli Associates. But it's not in the genes of their advisors, he adds. “If you put the bank's interest at an 8, I'd put the advisor's interest at 2 or 3,” he says. “Advisors never want to be the first person to do something new. If something does go wrong, they only give it one chance. If [banks] mess up a single transaction, the advisor's not going back to it.

“There's always going to be this push and pull over who owns the client, whose relationship it is, who decides what I do or don't recommend,” Waldert adds. “If you push these initiatives down too hard, then you're going to start to push advisors out the door.”

It may be that BofA and Wells sense that. The Merrill broker and two Wells Fargo advisors who spoke with Registered Rep. about cross-selling said they were not feeling pressed to market bank products yet. Some speculate that the two banks are still focused on integration issues with their new acquisitions.

Pressure? What Pressure?

“We've had a couple of workshops on lending, on how mortgages work. They've told us, appropriately so, that this is what the competition is doing,” said a Wells advisor with more than $50 million in assets. “They're presenting it as defensive. ‘This is a tool we think would be smart to use.’ But there's absolutely no pressure. My goal last year was three mortgages. I didn't do a single one. In my review, my branch manager didn't even bring it up.”

He's philosophical about bank ownership these days. He once told a former boss at A.G. Edwards that he loved working there but would quit if a bank bought out the company. And yet that's what happened — twice — when Wachovia bought his brokerage before being swallowed itself by Wells. “But you know what? There's nowhere to go now,” he says. “Everybody's owned by banks. Morgan is technically a bank. Merrill is a bank. We're a bank. UBS is a bank. So if you want to be a broker, you can't do a thing about it anymore.”

Another Wells advisor said his office told him it would like to see him do five or six mortgages a year, but they weren't forcing a quota on him. “The way I look at this is, if the opportunity presents itself, fine, but I sure as hell am not cold-calling on that,” he says. “If somebody says to me, ‘Gee, we have an 8 percent mortgage,’ the first thing I'm going to tell them is, ‘You ought to think about refinancing, and I hope it's with us.’ But I'm not asking every client, ‘Don't you think you should be doing your mortgage with us.’ At the end of the day, the success of a brokerage firm is about institutionalizing repeat business; transactional business is not where the money is for us.”

Indeed, there's little in the way of incentives to attract advisors to market bank products in the first place. Wells offers a mortgage finder's fee of 50 basis points. On a $200,000 mortgage, $1,000 goes to an advisor's grid, of which he may only keep 40 percent depending on his production level. After taxes, the take-home is less than $300.

“If the client's going to be dealing with somebody at an 800 number who's going to drop the ball and aggravate my client and have him call me and say, ‘What's wrong with you people at Wells,’ thinking we are all really one company, it's not worth it,” the advisor says.

Bank of America has said that its integration with Merrill Lynch has officially begun; both the bank and the brokerage are sharing the same technology platform in ways that the company expects will advance cross-selling (identifying client assets more easily, for example). But Merrill advisors point out that their brokerage provided banking-style services for years before the acquisition, including trust services, mortgages, checking and other cash management accounts.

Lending to high-net-worth brokerage clients may still provide some opportunities for parent banks, Waldert believes. Corporate executives with large restricted stock positions may need to borrow against the equity, for example. Investors who own small businesses can be referred to the parent bank for commercial loans. Advisors have tended to stick to what they know best — stocks, mutual funds — and to avoid banking products because these things are outside their comfort zone, Waldert says. But that may be changing. He suggests there's more awareness among advisors about banking services now. “You might have had to dig to find that capability, where now there's somebody in the branches talking to you on a semi-regular basis about those opportunities. So you're more actively looking for them as a solution.”

Some advisors sound resigned to the new order. “The reason banks are buying other banks is the same reason companies offer upfront money to brokers. It's just about taking away somebody else's market share,” a Wells advisor says. As banks grow larger, the risk grows as well that an investor who moves his banking to a competitor may move his assets there as well. So the incentive exists to make his banking relationship “stickier” to keep him inside the tent. And that means cross-selling.

“It's inevitable that stuff is going to roll downhill. We're at the bottom of the hill, man!” the Wells advisor says with a laugh.