Greg Brown used to be an investment adviser with A.G. Edwards Inc. Which was acquired by Wachovia Securities. Which was then swallowed by Wells Fargo Advisors. “That revolving door in the midst of the financial crisis became a burden and a challenge for me and my ability to serve my clients,” he says.
In 2009, Brown joined the Happy State Bank in Texas, taking with him about 80 percent of his client base, he figures, and where he is now responsible for a thriving broker-dealer business serving mostly small communities around Amarillo in the northern Texas panhandle. “Given the fact that I operated in a small-town environment,” he explains, “it just seemed like a natural fit — a community bank that offers the same type of services without what you might call that big-bank feel.”
When he arrived at Happy State, the bank had an existing relationship with PrimeVest Financial Services, a national provider of broker-dealer support for community banks and credit unions. This tie-up enables Happy State to offer clients a full menu of broker-dealer services.
With assets nearing $1.6 billion as of Dec. 31, 2010, Happy State has 30 branches, some in nearby Amarillo, a city of about 200,000, but most in smaller towns with populations of 5,000 to 15,000 or 20,000. Agriculture and oil and gas are the area’s dominant industries. Brown is located in the Pampa branch and says, “A good number of my clients are in the oil and gas business either as independent producers or as employees of the independents or larger service companies.”
Brown covers five branches within about a 100-mile area around Pampa, visiting four of them every week and a fifth, more remote branch, about once a month. Three of the branches are within 30 miles and one within 45 miles.
“I know that may seem like a long distance,” he says, “but as flat as it is out here you can scoot down the road pretty quick.” He has one full-time assistant in the Pampa branch and relies on the bank for peripheral support.
To market his business, Brown tries to develop strong relationships with front-line bankers in each of the branches. “The bank operates under a referral incentive program and that works very well,” he says. He also participates in all the bank’s functions as much as possible, including open houses and ribbon cuttings. The bank also hosts a monthly happy hour at the local coffee shop. “We hang out for the evening,” Brown explains. “I invite all of my clients and if they show up they get a free cup of coffee and can pick my brain about whatever subject is important to them at the time.”
Asked if the broker-dealer business is growing, Brown laments that, “Growth can sometimes be more of a burden than a blessing.” He adds, “The growth rate that I’m experiencing right now is just on the edge of being manageable.” To ease the load, he is attempting to hire an assistant broker who would help with the branch coverage among other things.
Brown is not complaining though. “Truly, I am happy with the client base and the growth rate,” he says. “There was a booklet years ago called, ‘The Millionaire Next Door.’ You have to be aware of the fact that a small town does not exclude millionaires. There are plenty to go around in a place like Pampa and similar-size towns and cities.”
Asked if he believes other small town banks should consider the broker-dealer business, Brown answers, “I do. I think our bank has been very forward-looking, especially given the fact that it is run by ‘traditional’ banking executives. Sometimes they are not quite sure what we do but they trust us. They gave us a shot at it and we haven’t let them down yet.”
Brown points out that in addition to being another source of income, the services also comprise a strategy to enhance client relationships. “The clients know they can take care of their banking, their investments, their insurance, all under one roof,” he says. “It works for us. I don’t know why another bank wouldn’t consider it.”
Catherine Bonneau, CEO of PrimeVest, agrees. “Consumers, I believe, are tired, frustrated and concerned about the future and understand that they need support and want to get it from someone they trust,” she says. “Fortunately, community banks and credit unions pretty much kept their noses clean through the financial crisis and seem to be where clients are gravitating to seek the support they need to recover from the turmoil.”
Bonneau notes that other ways for banks to generate noninterest income have been squeezed or taken away, prompting more interest in insurance-investment programs.
“We can bring in this service that is of value to their clients without a huge investment of capital or any call on capital. It becomes a source of noninterest income to the financial institution, which is what they are all looking for.”
Although the average asset size of institutions attracted to PrimeVest is between $500 million and $5 billion, many smaller banks have successfully employed the firm’s services. “For years, our No. 1 producer was from a very small financial institution in a small town,” she points out. “So the size of the institution doesn’t necessarily give any indication of what the success of the investment program will be.”
To address the needs of smaller banks, Bonneau explains that some banks begin the relationship with PrimeVest with something as basic as a money market suite or electronic discount investment service with no in-house representatives. If the bank decides customers need someone to call but it’s still hard to justify a dedicated employee, PrimeVest has what it calls Rep-on-Demand.
“This is a centralized offering,” Bonneau explains, “where full-service reps that are licensed in all 50 states take calls from our Rep-on-Demand banks.”
If the bank and the customers decide they like that, “We’re ready to do some more,” Bonneau says. “That’s when we talk about putting a dedicated employee — a licensed person — within that financial institution. At the start they need not be a full-time investment professional; they may do investments on a part-time basis and have some other function at the bank, be it customer services or sales in some regard.”
In a few geographic areas around the country, the firm has community financial institution directors. “These are independent contractors who know PrimeVest very well,” says Bonneau. “They have decided to start their own businesses and that is providing program management services to PrimeVest banks within their geographic footprint.”
Most of the investment advisors recruited by Bonneau’s firm come out of the broker-dealer industry, many of them disenchanted wire-house employees such as Happy State’s Greg Brown. But a licensed banker program is also available.
“This is where a customer service rep, typically opening up deposit accounts and CDs, doing those kinds of things, could move toward being in the investment and insurance business,” says Bonneau. “The first step is to become insurance licensed and be able to sell fixed annuities in addition to CDs. Then if they are successful at that the next step is often to get a Series 6 license so they could sell mutual funds. And then on up the licensing chain. We support all the way up to very sophisticated investment advisory reps.”
Again agreeing with Brown, Bonneau considers broker-dealer services “a huge opportunity” for community banks. “And the reason, of course, is demand from the customers,” she concludes.
Bill Poquette is editor-in-chief of BankNews.
Copyright © April 2011 BankNews Media