Banks expand financial-services offerings

Stocks gained 33 percent in 1997 and set a record for gaining more than 20 percent for the third year in a row.The enormous success of the bull market has sent banks scrambling to compete for those investment dollars that new investors are pouring into the stock market.
People have watched the stock market zoom and now think it is the place to make money. The low interest rates offered by banks for certificates of deposit, savings accounts and money-market accounts are no longer appealing to customers. So banks are changing their strategy. If you can’t fight ’em, join ’em.
More and more banks are offering investment options such as annuities, individual retirement accounts, financial planning services and even mutual funds. At many larger banks, employees are receiving training and licenses to sell annuities and mutual funds.
Some larger banks have actually purchased investment firms that will operate offices in the bank and offer a complete range of investment services, including discount brokerage fees for customers who want to manage their own portfolios and invest in the stock market.
Colorado National Bank will soon be offering the complete services of a brokerage firm.
“We recently acquired Piper Jaffray Cos.,´ said Samantha Levine, in corporate relations at Colorado National Bank in Denver. “The acquisition is nearly completed, so we will be offering a lot more services. It is actually a blending of the two entities together.”
Colorado National Bank was purchased by First Bank Systems in Minneapolis and in March, the names of all the Colorado National Banks will change to US Bank. US Bank operates in 17 states and has more than 1,000 banks.
Currently, the bank has a department called Investment Services Inc. that offers investment services through a brokerage company.
“We offer investment services three days a week,´ said Chris Koch, a sales assistant at Colorado National in Longmont. “ISI is a total brokerage department. We offer IRAs, higher rate CDs, stocks, bonds and mutual funds.”
Piper Jaffray’s services will be available in all the Colorado National locations across the state. Koch said that the bank is offering these services to establish a better relationship with customers.
“We are trying to get a total customer relationship,” he said. “The happier customers are, the happier we are.”
The idea is to offer people all types of investment services at one place.
Although banking regulations have loosened up in the last few years, there are still complicated regulations that control a bank’s ability to sell stocks.
To comply with these regulations, most banks have a brokerage firm establish an office in the bank under a contractual agreement with the bank, and they keep the banking business separate from the investment department.
“The people at ISI are internal with the bank,” Koch said. “But it is set up as separate entities.”
Koch said that the investment office is gaining clients almost daily.
“I refer about five or six clients a week to ISI, and other sales assistants are also referring clients,” he said.
The investment business is growing rapidly, and even though the bull market is showing signs of slowing down this year, baby boomers are looking at the market for retirement investments. They have money to spend, and they want to retire early so mutual funds, annuities and stocks still have a great appeal.
“All the available money is going into investments,´ said Mark Driscoll, president of First National Bank in Fort Collins. “There is more money in mutual funds than in bank deposits. In total dollars, there is more in funds than deposits because of the seven-year bull market. So banks want to offer those services to be competitive. We have to offer what people want to capture a share of that money.”
Driscoll said that banks are becoming more dependent on fee-based services.
“The sale of stocks, bonds and annuities are becoming a larger part of those fee-based services,” he said.
First National Bank has a contractual agreement with a brokerage firm and has created a separate department called Investment One at First National Bank.
“We have had this department for eight years because we saw the trends,” he said. “We see that the big national players are buying brokerage firms, but I don’t think that is the role of a community bank like ours. Our employees work in Investment One. They are trained and licensed, but we don’t have them cross over. Investment One doesn’t help people buy individual stocks, although they are qualified to do that. They help them develop specific plans, such as retirement or investment plans.”
Driscoll said that the investment department has grown steadily.
Not all banks have jumped on the investment bandwagon, however. FirstBank of Northern Colorado in Fort Collins is offering a range of traditional banking services, which includes a money market savings account with a 3.5 percent interest rate on a $1,000 balance and 4 percent interest on a $20,000 balance. The bank also offers a money market timed account that is similar to a CD and a liquid asset account with an annual yield of 5.37 percent on a $20,000 balance.
“We do not offer actual investment services by someone coming into the bank from a brokerage firm,´ said Patrick Bashor, new accounts representative at FirstBank. “With the liquid asset account, we try to mirror what the Smith Barney liquid account would do.”
Acquisitions and mergers have changed many small banks into big banking operations that now have the ability to offer many more services to customers. Pioneer Bank in Longmont, Berthoud, Niwot and Lyons was recently purchased by Community First Bankshares Inc. of Fargo, N.D., and will become Colorado Community First in April.
“Currently, we offer CDs and IRAs and various money-market accounts,´ said Mel Green, vice president and branch manager of Pioneer Bank in Berthoud. The bank is in transition and will be offering brokerage services to customers.
“We will get training and licenses so we can offer annuities and perhaps mutual funds, but I don’t know what that license entails.”
Green said that the bank has grown very rapidly.
“We opened here on May 1, 1996, and in just over 20 months, we have grown to over 20 million in deposits. So we grew very fast,” Green said.
Dale Schlotzhauer, senior vice president at the Colorado Bankers Association, said banks make it clear to clients that investment products are not insured by the federal government the way that bank products are insured. So these investments are more volatile and risky.
Despite that risk, banks’ shift into investment services has been well received by customers, and likely will only continue to accelerate.