Union Bank of California enjoyed a steep increase in brokerage revenue last year, due to increased referrals to its advisors from a beefed-up corps of licensed bankers.
"Our referrals went up dramatically, as well as our referral income," says Steven Short, the chief executive of Union Bank Investment Services in Los Angeles. "We've got some real momentum."
Referral income in 2010 was $4.5 million, up from $1.5 million the previous year, says Short. Referrals have been increasing from month to month, and 2010 ended with more than 3,400, he says. Short expects referral revenue in 2011 to total "at least $6 million."
Union Bank is in the midst of an initiative to energize and enlarge its licensed bankers corps. Through a training and licensing push, the bank raised the ranks of its licensed bankers from 100 to 263 by the end of 2010.
Last spring, Short discussed plans to increase the total number of licensed bankers to 325 within three years. Union Bank was able to quickly train and license 160 bankers in 10 classes, because the retail bank freed them from their duties for the requisite three- to five-week training.
Union Bank is a unit of UnionBanCal Corp. (based in San Francisco), which is a subsidiary of Mitsubishi UFJ Financial Group Inc.
Seeing untapped referral potential, Union Bank, in 2009, hired two leaders to oversee its licensed banker program: Casi Dileva, licensed banker and life insurance program manager, and Jerry Mladenik, licensed banker manager on the retail side. The training and licensing push grows from that cooperation, Short explains. "The strong partnership between the broker-dealer and the retail bank is what separates us."
Other banks should pay attention to Union Bank's success, especially since fees are under regulatory pressure, says Michael White, president of research at the consulting firm Michael White Associates in Radnor, Pa. For many banks, fee income has, or will, suffer from new limits on charges on deposit accounts, White notes. "This is obviously a straightforward way to offset those declines," White says. "Even if they didn't have those declines, it's a good way to increase income."
The pickup in referrals helped Union Bank's brokerage and insurance businesses have a mostly successful record through at least September 2010. According to White Associates, the parent banking company's insurance brokerage fee income in the first three-quarters of 2010—the most recent data available—rose 49% from the same period in 2009. Securities fee income was up 14%. Annuity commissions, however, were down 5%.
Union Bank's licensed bankers aren't allowed to sell investments and insurance directly to customers; their job—aside from banking responsibilities—is to make referrals to dedicated financial advisors.
Using licensed bankers as a referral engine is a big financial commitment, between the upfront training and licensing, and the required continuing education. But it opens the way for referral incentives that can be more effective, White says. "One advantage is that you can reward [the referring bankers] more liberally than with just a nominal referral fee."
In fact, making a significant investment in licensed bankers can motivate their supervisors and senior management to keep referral goals front and center, White says.
Union Bank carefully selects trainees for the licensing program based on their aptitude and enthusiasm for the investment and insurance referral role, Short says. The bank wants its retail licensed bankers to have Series 6 and 63 licenses and insurance licenses.
Series 6 licensees can sell packaged investment products such as mutual funds; Series 63 licensees can sell securities. Thus far, trainees have passed their exams at a rate approaching 90%, Short says.
Union Bank is not concerned about poaching of its newly licensed bankers, Short says. So far turnover has been the same among licensed and non-licensed bankers.