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Broker-Dealer Sales Through Banks Rise

Top broker-dealers posted gains selling a combination of packaged mutual fund and annuity products in banks in 1999 despite overall sales declines in the bank channel, according to a report released by Ken Kehrer Associates, an independent consulting firm based in Princeton, N.J. that specializes in bank securities data.

The leading marketers of mutual funds and annuities in the channel saw their sales climb five percent to more than 96 percent during the year while overall sales of those investment products in banks declined during the period, Kehrer reported.

"Overall, bank sales of annuities and mutual funds were down by four percent last year," said Ken Kehrer, president of the firm. "But when you look at the performance of the third-party broker-dealers, they all did much better than the overall market."

That is a noteworthy development because the market for broker-dealer services appeared to be drying up until last year.

"One of the stories over the last few years for broker-dealers has been that the market for them [was] shrinking," Kehrer said. "This year they obviously grew."

Two trends have helped broker-dealers maintain sales in the face of the bank market's overall lackluster performance, according to Kehrer. Some broker-dealers have added significant numbers of new banks to their business. Others have benefited from consolidation in the banking industry.

"A more effective way than adding a few more banks to your business is to have one of your big banks buy another big bank," he said.

A third factor cited by Kehrer in broker-dealers' 1999 success is their strong positions in annuities.

"A lot of these third parties sell relatively more annuities than mutual funds, so even though their mutual fund sales were down or flat, their annuity sales increased so much that it offset any fall-off in mutual fund sales," Kehrer said.

For the second year in a row, IFC Holdings of Tampa, Fla., led broker-dealers during 1999 by selling nearly $3 billion in mutual funds and annuities in the channel, a 5.87 percent increase from 1998 when it sold more than $2.8 billion through banks.

What has kept IFC Holdings on top of the bank market is "good organizing, good planning and good execution among our strategic partners," said Robert R. Blagojevich, chairman and chief executive officer of the company.

It also helps if some of those partners are making acquisitions, he said.

"Sometimes mergers can help you, sometimes they can hurt you, but in 1999, we benefited from them," Blagojevich said. "Some of our key relationships were with acquirers. They were very aggressive from the end of 1998 throughout last year. In addition, we didn't lose any significant business because of mergers."

Following IFC, the largest broker-dealer seller of mutual funds and annuities through banks, were Independent Financial Marketing of Purchase, N.Y., and Essex Corp. of New York.

Independent Financial Marketing, the largest broker-dealer seller of variable annuities through banks, sold more than $2.7 billion in mutual funds and annuities during 1999, a 9.88 percent increase from the previous year when it sold nearly $2.5 billion worth of the product.

Essex Corp., the largest broker-dealer seller of fixed annuities through banks, sold more than $2.4 billion in mutual funds and annuities through financial institutions in 1999, a 19.82 percent increase from 1998, when it sold more than $2 billion in those securities.

The only other broker-dealer to reach the $2 billion mark was Bankmark of Morris Plains, N.J. Bankmark increased its bank sales of mutual funds and annuities by 96.5 percent to more than $2.1 billion in 1999 from more than $1 billion in 1998.

Bankmark sales were helped by mergers, including the Fleet acquisition of Bank Boston, internal growth and the growth of platform annuity sales programs, according to John Gabriel, executive vice president and chief operating officer of Bankmark. In a platform program, a bank employee, usually a branch manager, is licensed to sell annuity products and works with a third-party stockbroker.

Rounding out the top 10 combined sales leaders were BISYS of San Diego, with a 33 percent increase to nearly $1.5 billion from more than $1.1 billion; Talbot Financial of Chicago, with a 25 percent increase to more than $1.3 billion from more than $1 billion; Raymond James Financial Services of Kansas City, Mo., with a 29 percent increase to more than $1.1 billion from $886 million; Linsco/Private Ledge Corp. of Boston, which increased to almost $1.1 billion from $883 million; PFIC of Nashville, Tenn., with a 64 percent increase to more than $1 billion from $620 million; and FNIC of Medford, Ore., with a 16 percent increase to $882 million from $762 million.

While large mergers spurred the growth of some broker-dealers, Talbot Financial has developed significant resources at small- and medium-sized financial institutions. In 1999, years of planning and implementing training programs appear to have paid off with increased sales.