FULTON BANK STEAM AHEAD WITH FEE-BASED PRODUCTS

Feature Article - Summer 2010 | By Andrew Singer

BEFORE 2008, Fulton Bank (Lancaster, PA) wasn't really behind the idea of developing a fee-based brokerage business. It was more comfortable with those big, upfront annuity and mutual fund commissions. Fulton had a relatively elderly client base, and it sold lots of fixed annuities.

Frank Consalo, Fulton Financial Advisors

This ranked Fulton 29th among bank holding companies (BHCs) in annuity revenue. Among BHCs ranking ahead of Fulton, only three had larger annuity revenue gains (on a percentage basis) in 2009: Wells Fargo, Bank of America, and PNC Financial, according to Singer's Annuity & Funds Report.

Fee-based business was zero in 2005. Today, the program derives 32 percent of brokerage revenue in the form of recurring revenue, Consalo tells us. About 26 percent of that is fee-based.

Annuities with trails

How did the recurring revenue portion grow so large? For one thing, Raymond James went to Fulton's annuity carriers and worked with them to restructure the bank's offerings.

Earlier, a Fulton-sold variable annuity might pay a 6 percent to 7 percent commission upfront, with a mortality and expense (M&E) fee of 165 basis points; the new offering, by comparison, might pay only 5 percent upfront and an M&E fee¹ that would not exceed 115 basis points. This translated to a less expensive product for clients.

Moreover, the new annuity came with a trail—a 50-basis-point trail beginning at the end of the second year, say. (Trails on fixed annuities are paid too, but they are more modest. They are often 25 basis points a year.)

The bank also beefed up its sales force. In May 2008 Fulton Bank had 33 financial advisors. Today it has 53 advisors, says Consalo.

Annuities with trail commissions expanded reps' payout over a five- to seven-year period with less compensation upfront. Among other things, this (arguably) helps ensure continued service for clients. A rep retention plan was initiated in June 2008 to help with the transition. Fulton looked at the revenue the reps produced in the past and paid them an appropriate sum to tide them over until the trail commissions really kicked in. Only two reps retired.

It's not so much a matter of getting people on the bus—but having 'the right people in the right place' on the bus.

—Frank Consalo, Fulton Financial Advisors

Fulton's brokerage service's business as of June 2010 year-to-date was:

• Equities: 3 percent
• Fixed income (including munis): 6 percent
• Packaged products (includes fixed and variable annuities, UIT's, and mutual funds): 59 percent
• Recurring fees and trails (on both annuities and mutual funds): 32 percent.

Prudential is Fulton's top variable annuity supplier, followed by Jackson National. Other key underwriters are MetLife, Hartford and Pacific Life.

On the fixed annuity side, Fulton's top suppliers are New York Life, American General, and American National.

Some advisors didn't want to change. They wanted to stick with annuities. They weren't force fed. The bank did not say: If you don't embrace advisory relationships, you don't have a place here. "We didn't say that," says Consalo.

Many recently hired reps are doing a substantial fee-based business—in some cases 90 percent of overall production. Other financial advisors have seen this and seek to emulate it.

In March 2010, the first month that annuity trails started to be recognized, recounts Consalo, a number of reps began with $13,000 or $14,000 hitting their grid from annuities sold in the past. That has opened their minds to the sale of other products, including fee-based products.

It's a bit like the conservative client who wanted to invest only in Treasuries, but then moves on to municipal bonds or variable annuities. Eventually the investor is willing to try a mutual fund wrap account or a unit investment trust (UIT). "It progresses," says Consalo.

Something like this happens with advisors. They begin selling mutual funds and fixed annuities, but then experiment with a fixed annuity that pays a trail commission, which is sort of "neat," and they become more willing to look at variable annuities, and later perhaps mutual fund wrap accounts or even separately managed accounts (SMAs).

Handing clients to the trust department

Some banks have rules with regard to brokers working with high-net-worth (HNW) clients. Beyond a certain threshold—$1 million in investable assets, say—the broker must pass the HNW client on to the trust department.

Fulton operates in five states, and in four of them Consalo's brokers must hand off clients to the bank's wealth management unit if the client has $3 million or more in investable assets, a relatively high threshold. In Pennsylvania, where the bank has more wealth management resources, the threshold is lower, $1 million.

In those cases, the broker and wealth management relationship manager often meet together with the client. If a sale is made, the client's first-year fees go to the advisor's grid.

Fee-based business was zero in 2005. Today, the program derives 32 percent of brokerage revenue in the form of recurring revenue. About 26 percent of that is fee-based.

Wealth management makes referrals back to brokerage, too. "We have a good, solid relationship" with the trust department, says Consalo, who notes that both businesses report to David Hanson. "All the revenue goes to the same place," which tends to smooth out friction between units.

Only five of Consalo's reps do not have advisory licenses (e.g., Series 65 or Series 66). All recently hired advisors have them, although "it's not required."

Many of Fulton's branches are in less affluent, rural locations where there tend to be fewer professionals and small business owners—and also less demand for fee-based products that may have $500,000 minimums. Affluent clients in these locales might have a net worth of $250,000. "That's a mass affluent client," notes Consalo. A retail banker or a mortgage banker may refer the client to the advisor, and sales are often "high touch." Mutual funds and fixed and variable annuities often work well in these areas.

That said, reps in these rural markets can't just "look through" clients and assume they have no need for fee-based products.

Fulton operates in five states, and in four of them brokers must hand off clients to the bank's wealth management unit if the client has $3 million or more in investable assets. In Pennsylvania, the threshold is lower, $1 million.

Fulton's variable annuity sales have been increasing over the past year as advisors become more aware of living benefits, notes Consalo, who adds that the industry as a whole is now focusing on income-generating products (as opposed to accumulation products).

Insurance is a laggard

The life insurance share of Fulton's brokerage unit revenue is less than 1 percent, almost nothing, but there are recent signs of activity in universal life insurance and "linked" long-term care insurance products (like MoneyGuard's), says Consalo. In the past, insurance did not really grab brokers' attention. Recently, though, his wholesalers have been receiving more calls from advisors who apparently realize that if they are to become that "trusted advisor" to clients, they must know something more about wealth transfer and estate planning—and how insurance can support that process.

Consalo hopes to nudge insurance up to 3 percent of overall revenues in the next year or two. Because insurance sales don't really correlate with the equity markets, a larger insurance business could reduce ups and downs within the brokerage unit.

In any event, an enormous transfer of generational wealth will soon take place in the United States, and many people remain unprepared. Baby boomers, who had multiple financial advisors as they accumulated wealth, may trim down to one trusted advisor as they approach retirement. Consalo wants Fulton to be that single "trusted advisor."

The holistic approach to clients that Fulton favors may soon push advisors in new directions, like learning to help clients to "create a legacy"—establishing a trust, for instance. This new way of operating goes beyond trying to maximize return on investment. It can involve asking a client, "What are you going to be remembered for?"

On the other hand, some things don't change. Fulton's retail bank remains a prized source of leads for the brokerage unit. Most advisors still work in bank branches within Fulton's nine-affiliate-bank system, as do brokers at other banks. Advisors conduct seminars and hold small group meetings on subjects like retirement planning or college planning. None of this is too much of a departure from the way things worked a decade ago.

Fulton's traditional bankers seem to stick with the institution forever. The average tenure on the bank side is something like 20 years, says Consalo. Not surprisingly, many Fulton bankers have good client relationships. Bankers often know if and when "decision points" in clients' lives are coming up, like the purchase of a new home, or sending a child to college, or a looming retirement, and they often alert the advisor.

Involving the retail bank

The retail bank has input when a broker is hired, helping to determine whether a potential advisor will or won't succeed at Fulton Bank, and whether they, the bankers, can truly "team up" with that advisor. The retail bank wants to be sure that the advisor will do the right thing for its clients—that he or she will promptly return a bank customer's telephone call, say.

Branch managers or regional sales managers are directly involved in the interview process for new reps, and several times they have told Consalo that they didn't think a certain candidate would "click" at Fulton—"so we went in another direction," he recounts.

All this isn't that unusual, perhaps. Many small and regional banks involve the retail bank in the hiring process, says Consalo, recognizing that it is critical for a rep to communicate effectively with branch personnel. The largest banks, by contrast, often do not participate in the interview process.

Fulton has hired many reps from other bank brokerage programs, but he has also found advisors at wirehouses, independent firms, and insurance firms.

Fulton has beefed up its brokerage sales force. In May 2008, it had 33 financial advisors. Today, it has 53 advisors.

When they hire a broker from another bank, they usually have a pretty good idea of what they are getting. It can be different with wirehouse reps. That sales culture is often marked by more of a lone-wolf mentality. One has to hire with care.

Former 'independents,' by comparison, are often an easy fit. These are people who have run their own business, managed their own office, done a P&L, and appreciate the importance of a "name" like Fulton's when it comes to prospecting for new business.

Former insurance reps can also succeed. They're used to looking for new business every day, often cultivating "centers of influence," like accountants or lawyers. If they can add retail branch referrals to these existing centers of influence, life becomes easier.

Consalo estimates that 50 percent of new brokerage business comes from retail bank referrals. That probably hasn't changed much over past decades. What has changed is that the bank's clients are offered more products than in the past, and more clients have multiple products within the brokerage unit. A $250,000 (investable assets) client who once had everything invested in B shares now may have some assets in a variable annuity, some in an equity growth fund, and so on. Bank clients are more likely to diversify investments. Everyone is a bit more cautious as a result of the Great Recession. During the earlier bull market, by comparison, advisors were often "very aggressive," say Consalo.

Branch managers or regional sales managers are directly involved in the interview process for new reps, and several times they have told Consalo that they didn't think a certain candidate would "click" at Fulton.

Consalo began in bank brokerage in 1987 with Citicorp Investment Services. He became a producing manager for Citicorp in Southern California and later sales director for the Southern California market until he moved in 2000 to Wachovia Securities, where he became a regional president for a five-state Northeastern region.

In December 2008, Consalo was named president of Brokerage Services for Fulton Financial Advisors N.A., overseeing all aspects of Fulton's brokerage business in the Pennsylvania, New Jersey, Maryland, Delaware, and Virginia markets.

Asked about the keys to success in the business, he answers: You want to be part of a company that is committed to running a brokerage business; a company that is willing to put up the necessary financial and human capital. The organization should also have a long-term vision, including a segmentation strategy, and some notion as to how it wants to be perceived, e.g., as a client's trusted financial advisor.

The organization also needs a strategy at the regional/branch level to get referrals flowing from the branches. If not, why would an advisor want to work at a bank? Those bank referrals are often what attract brokers to a depository institution.

And, of course, it all comes down to people. "A key element is having the right people at all levels," says Consalo.

As former executive Larry Bossidy puts it in his book, Execution: The Discipline of Getting Things Done, it's not so much a matter of getting people on the bus—but having "the right people in the right place" on the bus, notes Consalo.

¹ The fee the insurance company charges you to provide you with a lifetime income, and your beneficiaries with a death benefit should you die during the accumulation phase.

Andrew Singer is editor-in-chief and publisher of Bank Insurance & Securities Marketing magazine. He can be reached at asinger@bisanet.org