Howard Hammond is a pretty happy guy. His program, Fifth Third Securities, brought in over $1 billion in assets last year, grew 26% as of November and increased headcount by 30%. He attributes that growth to selectively hiring quality people who are dedicated to understanding the needs of the client. "We've had a tremendous year," he says. "I feel fortunate heading into 2011 and very well positioned to compete. Based on what I hear out there we're pretty unique this year."

Last year was one of those best-of-times, worst-of-times scenarios for many programs. Those, like Fifth Third, that focused on developing strategic, client-centric programs saw impressive growth, while other banks are still struggling just to survive. And one advisor describes the "personality" of 2010 as a year of "unbearable angst," among his baby boomer clients who continued to panic over their retirement savings.

Nonetheless many large and small bank brokerage programs grew at least incrementally over 2009. Record low interest rates and volatile markets drove sales of fixed annuities down, crippling some programs, but also encouraging reps to sell market-neutral products like insurance and financial plans. And as the economy and the market creep in a positive direction, clients are tiptoeing back into stocks. Meanwhile, savvy bank brokerage programs seem to have taken major steps to upgrade both technologically and in the quality of interpersonal service.

Bank programs that relied on fixed annuities were among the hardest hit last year as interest rates sank to all-time lows, and that doesn't look like it will change quickly. Fixed annuity sales fell from $2.5 billion in October of 2009 to $1.4 billion this past October. Variable annuities, now trending up slightly, were flat all year, according to the Kehrer-Jackson Monthly Bank Annuity Sales. "People will have to take a closer look at the licensed banker programs that aren't just based on fixed annuities because commissions were down by 40%," says Bruce Stava, director of sales for the Wealth Management Group at First Bank in Huntington Beach, Calif. "You have to broaden the canvas you're painting on." While his program met its numbers, since the crisis hit, First Bank has lost 40 branches and 20% of its sales force.

Life insurance, however, was a lifesaver at many programs that broadened their product palettes to include it. In the first nine months of 2010, bank life insurance sales surpassed the annual record of $1.3 billion set in 2004, according to Kehrer- LIMRA. After six straight quarters of strong growth, total premiums were up 61%, compared with the same period in 2009. "Historically, without exception, any time fixed annuities came down, platform sales followed," says Scott Stathis, managing director of Kehrer- LIMRA. "This year, life insurance broke that trend."

Most popular were single-premium universal life policies, the easiest of the permanent policies to sell. But whole life, long-term care and especially the increasingly popular life/annuity/long-term-care hybrids paid off where programs sold them. "If you think about it, we all buy home and auto insurance, and the chances of using it is fairly remote," says Rob Comfort, president of Huntington Investments in Columbus, Ohio. "But if you look at long-term-care needs, there's a 70% chance people will need it." Right now only a few companies offer long-term-care hybrids, but the industry can expect to see more bringing out products next year. "One of our biggest successes this year is growing our fully underwritten insurance business," says Comfort.

"Life insurance is one of the most exciting stories of the industry this year," agrees Stathis. While revenues from life insurance are still relatively small compared with annuities, Stathis thinks they have reached a critical mass in the bank channel and will continue to grow as more reps see the advantages of adding it to their quiver. Even if insurance sales falter when interest rates rise and fixed annuities become attractive again, Stathis says, "One of the benefits of this market downturn is that going forward, you will see a higher percentage of reps selling life insurance than before."


As we head into 2011, bank advisors and their clients are feeling more optimistic about the stock market. Of those responding to BIC's annual outlook survey, over twice as many advisors (27%) reported that their clients thought the market was undergoing a significant rally, compared with only 12% last year. "People are moving from the position of being scared and earning nothing on their money to wanting to earn something by taking a little more risk, which is what people do when they start to feel better," says Kevin Dunnigan, an advisor with Investment Centers of America at Home State Bank in Ft. Collins, Colo.

It will still be a challenge to get conservative bank clients off the sidelines in 2011. That's where the new popularity of equity-linked CDs or structured products comes in. These FDIC-insured products offer some equity upside with a guarantee of principal. "Market-linked CDs are a nice bridge as memories of 2008 fade," says Jack Cramer, president of Cramer & Associates, a consulting firm in Madison, Wis. "I think this will be a staple for the next generation or two." When final numbers are in, sales of equity-linked CDs should top $35 billion for 2010, according to Kehrer LIMRA. That compares with $80 billion for total annuity sales.

Equity-indexed annuities (EIAs) have also helped fill the void left by fixed annuities. These also offer some market upside with downside guarantees. Sales of EIAs are dwarfed by those of fixed annuities, yet they are growing faster, rising from 2% of all fixed annuity sales in the third quarter of 2008 sales to 19% in the third quarter of 2010. "Indexed annuities are priced to have a record year this year because the guaranteed lifetime withdrawal benefit (GLWB) and premium bonuses are driving sales plus the potential for upside," says Stathis. "They're popular because the market is doing well and fixed annuity rates are so low."

Advisors are also looking to the stock market for more return in 2011. They are faced with the challenge of getting clients out of bonds and back into stocks. "The industry is gearing up for a fixed-income bubble," says Christopher Randall, president of M&T Securities. "We've seen a shift toward more equity-based products and we're advising clients to diversify away from fixed income." According to BIC's survey, most advisors are looking to emerging markets and alternative assets to outperform in the year ahead.

"We've been in a bull market for bonds for three decades and our advice has been for clients to be in the short end of the duration, with some healthy exposure in international equity," says Mary Mack, head of wealth brokerage services for Wells Fargo Private Bank. "Our message has been as much about the global markets as the U.S. stock and bonds markets, because you have 90% of the population and three-quarters of the world production outside of the U.S." She points out that it has taken an 85% rally in the stock market for clients to get more courageous, "which says something about the impact of the financial crisis on people's nerves."

Advisors who urged their clients to stay invested in the stock market during the crisis through last year should have some loyal fans by now who were able to watch their invested savings appreciate back to where pre-crisis levels. According to our survey, the number of clients didn't vastly change for advisors from 2009 to 2010, but their assets under management increased dramatically: 67% saw AUM grow 1% to 10% or more last year, compared with only 39% for 2009.

It wasn't just products that separated out the success stories last year. "Programs that succeeded had great fundamentals and had been working on all the right initiatives like transitioning to more comprehensive, fee- and advice-based service," says Cramer. "If you started all those initiatives in 2006 and 2007, and then kept your focus through the crisis and all that cutting, that discipline paid off for firms and advisors."

Take Fifth Third Securities in Cincinnati. In 2007, the program underwent a makeover from an old school, licensed-banker based, fixed-annuity-sales-driven shop to a full-service, client-needs-based program, says Hammond. Now only 15% of the program's revenues come from either fixed or variable annuities. "We made a concerted effort to deliver a solution that is based on clients' needs and that really paid off for us," he says. "Over the past 20 years, banks have been saying they're trying to improve. If you're still saying that, you're probably not doing very well. We could always get better, but we have dramatically improved."

The program's main edge is the high quality of advisors and managers Fifth Third has hired over the past four years, he says. "We turned over 70% of the program's reps and hired people who could sell a diversified platform of structured notes, mutual funds, managed solutions, and who could give premium advice and provide superior service." The program currently has 500 licensed bankers, who primarily make referrals, and 330 full-service advisors. Fifth Third also focused on life insurance. "It was a small part of the business four years ago," says Hammond, "but it's key to the advisory relationship, whether you are a small-business owner or a husband and wife."

Hammond also attributes the success of this metamorphosis to a firm commitment from top management. "A lot of banks struggle when they try to make that shift," he says. "It really takes a core of senior leadership to be dedicated to doing that." Even though the program only contributes 10% to the bank's bottom line, he says CEO Kevin Kabat and and COO Greg Carmichael believe that if the program strives to help people meet their financial goals, they will create better clients for the whole bank.

Top management appears to understand this more since the financial crisis. Bank brokerage programs gained higher visibility as new regulations deprived banks of typical sources of income such as overdraft fees and loan interest. "Brokerage has become more important with the bank especially with the Dodd-Frank bill because they can't charge as many fees and capital requirements are more stringent," says Huntington's Comfort. "I think the broker-dealers will continue to get a lot of attention." BIC's survey would seem to confirm this. The percentage of advisors saying they got "lots of support" from top management rose to 44% last year from 35% in 2009.

Another positive legacy of the financial crisis is an increased demand for advice. "Overall, the recession provided advisors with more opportunities; when the market's going up, there isn't so much need for us," says Ron Furnish, a Raymond James advisor at Towne Investment Group in Virginia Beach, Va. "When times are hard people turn to professionals for advice, so uncertainty isn't such a bad thing."

The need for advice is particularly acute around retirement planning since the average advised client is age 63.5, according to Mark Halverson, head of wealth and asset management at consulting firm Accenture. Or as First Bank's Stava puts it: "For every customer worried about long-term growth, you have two customers worried about where the cat food is going to come from."

Retirement planning is the big opportunity that banks have generally been slow to capitalize on, but many are now busy catching up. Cramer held a roundtable in October at which 20 bank broker-dealer executives from institutions of all sizes were "putting together plans and programs that align training, technology and marketing around retirement income as its own specialty," he says.

Both Huntington Investments and Key Investment Services had healthy growth last year and attribute part of it to launching new retirement-specific offerings. "We had great success creating our own retirement program," says Comfort. "We were able to help assess the clients' long-term income needs and how prepared they are to meet them. Because we're taking clients through a planning process, we're uncovering assets we wouldn't otherwise know about." (Huntington Investments grew 13% from a year earlier as of the third quarter and there are plans to increase the sales force by 25% in 2011.)

Marc Vosen, head of Key Investment Services, tells a similar story. "A lot of people's retirement plans have been turned upside down and they really want to know where they stand," he says. "When you do retirement planning, people don't hide things from you. They really want to know what their retirement outlook is so they're going to share the information they have." His program grew 20%, adding 20 advisors and about 150 licensed bankers in 2010.

Offering a more planning-based, client-centric experience continues to be important for the future. As people start to retire they also want to simplify their financial lives. The average mass-affluent customer, for example, will reduce his advisory relationships from 2.8 to just one when he retires. "If I'm going down to one relationship and want to consolidate, I need cash management, debt management, insurance and investments," says Halverson. "If your program is only about investments, you won't be able to help me understand how to spend down my money."

As a result more banks are emphasizing a financial planning approach and the fee-based managed accounts that tend to go with them. At Huntington, advisors now approach clients around five core financial needs: banking, investments, risk management, income distribution and asset transfer.

At PNC, "we're constantly working on advisors to deliver a more advisory approach. We find that to be the main driver of whether clients choose you as a primary advisor," says Mike Mortensen, president and CEO of PNC Investments. "We've beefed up managed accounts, are putting our planning station on everyone's desk as well as putting planning coaches out there and supporting that." PNC hired 300 new reps last year and is looking for 200 more in 2011.

While a financial planning emphasis is not new, advisors are increasingly accepting it as a way to deepen relationships with clients and prepare for potential changes in fiduciary legislation. "Adoption among financial advisors is growing and that is an ongoing initiative that's important now, especially the regional guys who are trying to differentiate themselves on advice," says Sophie Schmitt, a senior analyst at Aite Group in Boston.

Another initiative under way is implementing systems to serve mass- and emerging-affluent clients cost effectively. Individually, members of this group don't have enough money to warrant full advisor service, but collectively they constitute some 25% of all assets in the country, much of it in common banking products, according to consulting firm Novantas. "Finding ways to serve the mass affluent is a top priority for top 30 banks in 2011," says Wayne Cutler, a managing director at Novantas. This means creating a combination of online, in-person and phone investment services to rival those offered by Fidelity and Schwab.

This is the No. 1 priority at PNC Investments in 2011, reports Mortensen. "There are definitely folks who prefer a phone-only relationship and we want to create self-directed web channels where we can put the banking and brokerage together," he says. "We have some inactive accounts that we could provide a higher level of service to for less cost." An initiative for 2011 and 2012 is to upgrade the broker-dealer's web portal as well. "We want to make PNC's advice philosophy come alive online so that it is way beyond just trading functionality."

Bank of America's Merrill Lynch unit and Wells Fargo have already cracked the code on how to get services to these clients with call centers, and having purchased full-service wirehouses, they now have the technology and pricing to truly offer sophisticated investment services within banks. "Both banks are bringing wirehouse capabilities into the bank channel so that the quality of competition has risen tremendously," says Alois Pirker, research director at Aite Group.

Wells now has three brokerage channels as well as online services, and Bank of America is capitalizing on the Merrill Lynch brand with its bank customers, he points out. Because both programs have internal clearing operations, they can offer trading for less than Schwab and Fidelity. "At Merrill Edge, for example, self-directed investors get 30 free trades a year," says Pirker. "They have a huge pool of customers on the banking side who are investing elsewhere with Schwab or Fidelity. If you offer them free trades, that's a good proposition." Not only do both Merrill and Wells have huge pools of clients to tap, they have thousands of branches, compared with hundreds for the discount brokers. The behemoths are "going to have an impact on other bank brokers because there are few out there that can keep up with that proposition," predicts Pirker.

This year the focus at Wells is finalizing the merger of the two companies by getting its West Coast branches on the Wachovia investment platform and changing the signage in the East Coast to the Wells stagecoach, says Mack.

While the megabanks have apparently winning combinations of might and variety at this point, some observers think they aren't paying enough attention to client service. "Big banks are relying on their footprint and scale," says Ron Wince, CEO of Guidon Performance Solutions, a management consulting firm that helps financial institutions streamline systems and processes.

He claims that the biggest banks still suffer from an "inside-out view," focusing too much on the balance sheet and risk metrics, and not enough on clients' needs. He points to the mortgage foreclosure fiasco by way of example. "When we looked at the process some banks used, they had designed it to meet the bare minimum requirements and that's why they had so many breakdowns," he says. "They lost an opportunity to create new clients."

Wince believes that most of the innovation is occurring at the regionals, such as PNC, BB&T and Key Bank, where firms are competing on making services more streamlined, user-friendly and customer-centric. For example, one Arizona bank is looking at bringing banking and brokerage services to clients where they live, in local retirement communities. "They're looking at these types of solutions, where you make it feel like the bank is there to serve the client," says Wince. "In the past it was always scale, now it's being more customer-centric."

This will increasingly require banks to spend more on technology in 2011 as mobile services and iPads become the norm and people expect 24-hour service from their brokerages, just like other online services. "Part of the message is allowing the clients to interact with you on their terms," says Halverson. "Why can I chat with someone online about a pair of boots any time of day or night and not about my financial products?"

Not all community banks will be able to make such investments, but many compete already on frequent personal service to clients whom they know and see in their communities all the time. "The sub-top 50 are trying to improve customer relationship management (CRM) systems to try to ensure that they meet with clients regularly and track that and coach to that," says Schmitt. "They're more focused on in-person service, that's their thing." In addition services offered by third-party marketers are increasingly sophisticated, often giving small banks big-bank capabilities.

Banks still have work to do to get cross-sell between brokerage and other parts of the bank. Aite's Pirker sees this happening increasingly between brokerage, and trust and estate departments. Rather than outsourcing the overlay management, more banks are using their own trust departments. "Many firms have a scalable investment process on the trust side," he says. "BB&T, SunTrust and Union Bank all have trust units and what we see is that being further ahead on the trust side, managed accounts and fee-based assets are increasingly opened up to the brokerage side. You'll see a lot more of that in 2011."

Another opportunity as yet down the road lies in specialized cash management services for people withdrawing funds in retirement. Over the next 10 years, $4.5 trillion will switch from investments to cash accounts for baby boomers to live on in retirement, says Novantas' Cutler. "Banks, which currently own the payments space, have a chance to capitalize on that by making money on that cash while they're holding it." For example, he says, retirees like to travel and could use some kind of service that would automatically pay their bills and pull out money for them to spend intelligently while abroad. The scenarios are numerous: Banks could show retirees who want to travel how three different travel budgets would affect their bills each month. "The brokerage firms are saying that losing this money is a huge risk and they're trying to keep it by coming up with these creative products," says Cutler.

Everyone seems to agree that the main challenge for 2011 is regulation. No one knows how anything will play out yet. From Dodd-Frank mandates to a fiduciary standard, people are poised to act but not sure what will happen. "The whole regulatory side is a big unknown," says consultant Paul Werlin, president of Human Capital Resources in St. Petersburg, Fla. "Banks are trying to anticipate where the regulators will come down on 12b-1 fees, upfront money and a fiduciary standard."

And of course there's the ongoing mega-challenge for bank programs: Letting people know they have worthy investment capabilities. "The challenge that we have and most banks have is building awareness about investments and retirement capabilities," says Mortensen.

Everyone knows that Merrill Lynch is a brokerage, but what about Wells? And some bank customers might find Merrill Lynch too intimidating. "It's a pure branding issue," says Cutler. "The banks are still not seen as having the products and investment specialists to handle this." He says only 45% of the top 50 banks are promoting their investment services. This should be among the top initiatives for bank brokerages as life returns to normal in 2011.