Trust, Securities, Insurance Pros Must Learn To Work 'Cheek By Jowl'

In very small institutions, this “portfolio of internal competitors approach” may work. That is because it is easier for professionals in such institutions to get to know and trust one another.

The approach may also work in very large institutions formed by the merger of very large securities, insurance, banking and financial service firms. Here, each business line likely has its own economies of scale and would in fact suffer diseconomies of scale if it were to integrate further.

Shared Resource Model. This model represents a step up in sophistication. Here, the various interests recognize that the whole is greater than the sum of the parts. However, the organization tends to have too much embedded inertia or too many vested interests to risk fully integrating.

Those employing this model recognize that silos are no longer useful and that change entails risk. So, although the trust area retains its own P&L and management structure, allocations of revenues and/or expenses do occur between the trust area and other areas of the institution.

Often the trust area establishes working relationships with other distribution channels within the institution. There may be independent arrangements, for example, with the retail bank, the commercial bank, the banks investment program or broker-dealer, the banks insurance program or agency, and the banks proprietary mutual fund distributor.

These other channels generally are viewed as referral sources. To work effectively in an institution of size, the trust area may use internal wholesalers to make the referral and communication process an easy one.

While this model recognizes and rewards working across business lines, it does not ensure that the rewards are sufficient to attract the desired result. If the reward is insufficient, the wholesaling effort is wasted. Alternatively, the effort may be highly effective, but because the multiple distribution channels ultimately share a common customer base, there may be channel conflict–with the client often caught or confused in the middle.

The Team Model. This approach frequently requires substantial reorganization of the firm, generally around the customers interests and convenience. The P&Ls of numerous business units can change significantly.

One, but not the only model, separates the trust sales and marketing functions from the investment management, trust administration and operations functions (i.e., separates distribution from manufacturing).

Then, after separating trust into its component functions, this model integrates trust sales and marketing with related sales and client service personnel. These personnel may include experts from securities, insurance, and the retail and commercial bank. The goal is to create client-centric teams where all have a shared and vested interest in the interests, growth and retention of the client.

In this model, there is an agreed need and a methodology for teams to come together across the organization. It addresses “undercutting” and “channel conflict” but by itself is not sufficient. The process is disruptive. It entails changes in account relationships and responsibilities.

To function well, individuals across the institution have to understand their responsibilities for the redefined functions and realigned client relationships.

The task can be daunting. Consider, for example, the case of a securities salesperson who is charged with selling trust services. This rep may end up using the Trust Divisions trust administrator and drawing on the Investment Management Divisions portfolio manager, who is also managing a proprietary fund (commingled or mutual). Furthermore, the rep may also be liaising with the retail branch manager who works with the president of a company, which, in turn, has a commercial loan relationship.

The same holds true for the people involved in trust, insurance, retail and commercial sales and in the marketing aspects of the client relationship. The individual must maintain multiple communications and relationships, with each person functioning as a team player and specialist at the same time.

Successful teams in this model are motivated by adequate compensation. Further, they have managements that simplify the interactions between the various responsible parties.

One tactic some firms employ is to use a gatekeeper or quarterback to facilitate the flow of information and solutions. But even this approach has its difficulties.

For example, the presence of a gatekeeper means there may be redundancy plus additional expense associated with the extra layer of talent. Also, the organization may have difficulty finding qualified people who understand the clients needs and know what trust, securities, or insurance product or service will actually be the best fit. The span of knowledge for a quarterback in this model is considerable.

The payback of using teams can be considerable, however. It may well provide financial institutions with the road back to a “close to the client presence” that some institutions lost in the drive for economies of scale in the 1990s.

J. Heywood E. Sloane is principal of Diversified Services Group and executive director of Bank Securities Association, both of Wayne, Pa. His e-mail is: [email protected].

Reproduced from National Underwriter Life & Health/Financial Services Edition, May 26, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.