M&T BANK: BRINGING TRUST AND BROKERAGE TOGETHER
A RESTRUCTURING, WHICH ABSORBED MUCH OF 2009, IS NOW COMPLETE

Cover Story | By Andrew Singer

The sales function has been restructured, too. All regional managers within private client services now report to a national sales manager; all sales managers within M&T Securities, the bank's broker/dealer (B/D), report to that same sales manager. The reorganization was completed in November 2009.

An 'under-developed sales model'

What prompted this restructuring? The bank's private client services model was established 20 years ago, says Thompson. It is well-stocked with specialists throughout M&T's 26 markets: lawyers (JDs), trust specialists, planning specialists (e.g., Certified Financial Planners—CFPs), insurance specialists—but there was an "underdeveloped sales model."

The restructuring, which absorbed much of 2009, is now complete. Now they have to make it work, says Thompson. '2010 is all about execution,' he says.

In Baltimore, Thompson's UBS counterpart might have 30 people "on the ground." He (Thompson) by comparison, would have two salespeople "but 30 experts." (Thompson is based in Baltimore where the institution has a long fiduciary history and many high net worth clients.) There was a mismatch in the organization.

On the broker/dealer side, by comparison, M&T had a strong sales model. Thompson calls Buffalo-based M&T Securities a "best practices" firm, one marked by low turnover, good relations with the retail bank, and excellent household penetration.

Fifteen financial advisors from brokerage and 15 wealth managers from trust have been merged into a single sales force of 30 'wealth advisors' to work with small business owners and business executives.

But the broker/dealer's 'relationship management' was underdeveloped, in Thompson's view. A rep might have 1,000 clients but would be able to spend quality time with only 200 of them. That may not be ideal. You simply have to "dig deeper" with some clients, notes Thompson, by offering more complex products and services. A business owner, for instance, may require more probing and a longer sales cycle to satisfy his or her personal financial needs. Was the B/D really equipped to do this? Did its salespeople have the time and the necessary product set?

30 new 'wealth advisors'

Some time back, M&T took 15 of its best financial consultants—it has about 250 program wide—and gave them access to small business owners. It called them financial advisors. Private client services also had 15 'wealth managers' who worked with middle-market business executives.

Now those 15 financial advisors from M&T Securities and 15 wealth managers from private client services have been merged into a single sales force of 30 'wealth advisors' to work with both small business owners and middle-market business executives with regard to their personal financial needs. Twenty more will be added by the end of 2010, many recruited from wirehouses and regional brokerage houses, as well as other bank programs. The wealth advisors will focus on business owners and executives with $1 million to $20 million in investable assets, says Thompson.

Thompson thinks M&T has a competitive advantage here. The trust infrastructure is already in place. Now they aim to leverage it across a larger client base.

There's some revamping of how M&T's FCs (i.e., rank and file financial consultants) will work now, too. They will have more access to high net worth (HNW) customers.

Say a broker receives a client referral. The client has $1 million in investable assets. In the past, the broker would use the B/D's own product set, primarily transactional products, or might refer the bank customer to private client services. The latter course wasn't all bad for the broker: 100 percent of the first year's fees went to the broker's grid. On the other hand, the broker would usually not have any future dealings with the client.

Under the new protocol, the broker becomes the quarterback of the client relationship. The broker is required to pass on to private client services a customer with $500,000 in investable assets (that threshold may change). But now the CFP, the trust expert, the private banker, the broker, and perhaps others, are sitting around the table with the client. The broker continues to have contact with the client.

As noted by Christopher Randall, CEO of M&T Securities, private client services and retail brokerage now have the same sales management infrastructure and access to "all clients with social security numbers" (i.e., all individual bank customers—as opposed to institutional clients).

M&T Investment Group

Wealth Advisory Services (brokerage and private client services) is one part of M&T's tripartite M&T Investment Group structure. A second sector is Asset Management, focusing on "advice generation," and headed by Jeff Durkee, senior vice president. That area is comprised of MTB Investment Advisors and Zirkin-Cutler Investments, Inc. The third sector is Enterprise Solutions, which encompasses commercial insurance, corporate trust, institutional services, and employee benefits. Tim Brenner, senior vice president, heads the unit.

The Wealth Advisory Services restructuring was largely completed by June 2009. Some internal training was required, notes Randall. FCs needed to be schooled more in trust and fiduciary services. Many wealth managers (i.e., trust officers) already had securities licenses, but those who didn't had to secure them.

Brokerage and trust together account for about 10 percent of M&T Bank's total revenue stream. Thompson would like to get that to 15 percent.

Another reason for the restructuring, admittedly, is that trust has been a slow growth area within the institution. The bank, like others, has struggled to add new trust clients. Most of its fees in this sector are from longstanding clients. The new structure should channel new customers to trust relationship managers.

Overall, M&T has about 120 relationship managers (trust officers), of whom roughly half are administrative officers, half investment officers.

B/D had reported to retail bank

For three-plus years before the restructuring, brokerage had reported to the retail bank, an "experiment that didn't really get traction," recalls Randall.

M&T was struggling to grow top-line revenues, looking to "build a better mousetrap." There's an opportunity here to break down product silos, to reinvent their wealth management model. It is fundamentally a "growth strategy," emphasizes Randall.

Not only do they expect to increase top-line revenues, but also reduce overhead by consolidating infrastructure.

What was wrong with keeping brokerage in retail? Nothing was wrong specifically with it, comments Thompson. It was a successful program. Relations with the retail bank were good.

But they have a better option now, in the bank's view. Given what the stock market did in the last two years to asset values and revenue streams, management had to examine things anew. How could they make trust (private client services) more successful?

Moreover, as long as brokerage and trust are separated, you can't leverage the infrastructure. You still need two compliance departments, two training departments, two marketing departments, and so on.

Drawing from wirehouses, regional brokerages

As they were considering the new wealth advisor position, recalls Thompson, M&T saw an opportunity, too, to capitalize on the dislocation of reps at many large wirehouses and regional brokerage firms as a result of the Great Recession. They saw an opportunity to draw experienced financial advisors to the bank.

This is a relatively new development. "Two years ago, we were all happy," notes Thompson. No one wanted to move. But that was before Lehman Brothers collapsed, before Merrill Lynch was purchased by BofA, prior to Wachovia Securities being absorbed by Wells Fargo, and so on. Now many experienced reps ask themselves: Will their employer even be in business five years hence?

Complacency wasn't the only reason that it was difficult earlier to recruit experienced wirehouse advisors—those with 15 years experience and strong planning skills, say. If those advisors (and their clients) came to M&T Securities several years back they would not have had access to a full suite of products and services and technical experts (JDs, CFPs, etc.). In a sense, "this position ['wealth advisor'] was created for them," e.g., the wirehouse reps, says Thompson. The new advisors can draw on the strong technical infrastructure within private client services. In addition, "We have access to business owners," a great draw for wirehouse advisors, says Thompson.

The new wealth advisor will 'split the difference' compensation-wise. The brokers will move to a mid-level salary with a commission component. The trust officers will have a larger commission component.

A three-tiered LBE program

M&T has also revamped its 1,200-person LBE (licensed bank employee) program, although not dramatically.

The program now has three tiers. On the first tier are 400 to 500 LBEs who only sell insurance (no securities), including annuities. M&T has determined that life insurance (e.g., term life, LTC) is a basic service, and it aims to have one insurance-licensed employee in every one of its more than 800 retail branches.

The second tier is comprised of about 600 LBEs who also sell securities—e.g., mutual funds—but they also refer securities customers to FCs.

M&T Securities will do about $8 million in life insurance revenues in 2009, says Randall, and the bank is projecting 10 percent growth in 2010.

The top tier is comprised of about 100 LBEs who are "required to sell" securities. They don't refer securities clients to the FCs. These are "tomorrow's dedicated financial consultants," says Randall. Typically, they have been in the program between five and 10 years, or have equivalent experience at another company.

The wealth advisor position is potentially for the FC who aspires to work with high net worth clients with more complex needs. When FCs reach this stage, they are required to relinquish their retail customers. Admittedly, not all may embrace this.

"It's not a forced path," comments Randall. If the FCs don't want to give up their retail business, they don't have to. Top performing FCs are eligible, also, for institutional sales positions.

The new wealth advisors are primarily selling investment management products. M&T Investment Group has developed an asset allocation model that makes use of Prudential overlay technology for these middle-market executives and small business owners, for instance.

Life insurance is also seen as a key product when dealing with these affluent clients. M&T Securities will do about $8 million in life insurance revenues in 2009, says Randall, and the bank is projecting 10 percent growth in 2010. The wealth advisors will increasingly be selling sophisticated life insurance products like buy/sell agreements and second-to-die coverage to the bank's affluent clients. M&T has 10 regional insurance coordinators—technical experts who don't sell insurance themselves.

Impact of Great Recession

What effect has the recession had on the wealth management function generally? The bank is not particularly optimistic in the short term with regard to asset management revenues. The bank has a big proprietary mutual fund portfolio, and a substantial institutional investment clientele. Those asset values are down. The bank isn't forecasting investment assets to grow dramatically any time soon.

After the stock market collapsed, there was a big movement toward fixed annuities at the retail level, but that's "dried up" now, says Randall. More clients are moving into wrap accounts or asset allocation programs.

There's no question that the "absolute level of sales are down" compared with historic norms, says Randall. But the penetration of "wrap" mutual funds as a percentage of all mutual fund sales is still about 30 percent—where it's been historically. Mutual fund revenues, however, remain at 2005 to 2006 levels.

There has been some spike in variable annuities recently, and a pickup in some strategies like dollar cost averaging.

M&T, like others, has seen a large increase in fixed-income sales lately. That makes Randall a bit nervous. If inflation rises over the next few years, as some think might happen, then customers may get "whipsawed" if they are entrenched in long-term fixed-income investments. M&T has been emphasizing shorter duration fixed-income investments.

What about overall brokerage growth? Randall projects about 5 percent brokerage program growth in 2010, but that is compared with 2009, an off year. They'll probably do in 2010 about what they did in 2008.

A new compensation model

Keys to watch? The dual-licensed LBEs "will be fine." So, too, will the financial consultants—"we haven't tinkered with that model," says Randall. But the compensation structure for the new wealth advisors bears watching. The financial advisors had been working with a small draw (e.g., $30,000), with most of their compensation in the form commissions. The legacy wealth managers (i.e., trust officers) had been working on a larger salary (e.g., $100,000) and a small commission.

With the new wealth advisor role, they will "split the difference" compensation-wise, says Randall. The financial advisors (brokers) will move to a mid-level salary with a commission component. The former wealth managers (trust officers), traditionally "great technical experts" but often not exceptional salespeople, will have a larger commission component. The bank's message: All wealth advisors are expected to be capable salespeople. Another question was trailers, renewals, and other recurring revenue. Might these residuals make the wealth advisors complacent after a few years? Make them less interested in sales—cruising on the renewals?

M&T thought that might be the case. The bank decided to deemphasize residuals. They would largely replace them with other compensation vehicles, like deferred compensation.

Again, the message is that "this is a sales job," says Randall. They want their advisors to focus on developing new business. If wealth advisors achieve their sales targets over time, M&T will pay a bonus from the first dollar over that last 2 to 3 years, however.

Getting the former financial advisors (brokers) to assume the new role is probably easier since they already had a high sales aptitude. They will have to acquire more technical expertise in some cases. Many already have CFP designations, but those who don't will be expected to secure them soon, or obtain another advanced credential, like a CLU (Chartered Life Underwriter) designation.

Developing career paths

Overall, the restructuring supports the bank's aim of developing "career paths" wherever possible for its employees. "At the end of the day, we like long-term employees," says Thompson. "That's what makes us successful." They want an M&T employee to have a "full career."

It's always good to hire from the outside, too, says Thompson. You don't want to become insular in your thinking and practices. But you also want people to grow from inside the organization. People who come up through the ranks—beginning as LBEs, progressing to dedicated FCs, later working with business owners and executives as financial advisors (now 'wealth advisors')—are often the "cream of the crop," he adds.

'At the end of the day, we like long-term employees,' says Thompson. 'That's what makes us successful.

Thompson himself has been at M&T for 20 years. He helped to create the B/D in 1995 (they worked previously with a third-party marketing firm). Later he left the B/D and moved to product management in the trust department—a 10 to 12 year brokerage guy suddenly learning about fiduciary products. The trust department, a legacy from the bank's past 150 years, had always operated separately from brokerage.

But "the world started to change" some years back, notes Thompson. Everyone started to engage in each other's business. Wealth management firms began offering transactional products. B/Ds began marketing fee-based products. Insurance agents started selling variable annuities and investment products. A "natural convergence" has been taking place, and the need for integration has become more apparent than ever, suggests Thompson.

A larger revenue stream

Brokerage and trust together account for about 10 percent of M&T Bank's total revenue stream. Thompson would like to get that to 15 percent.

Senior management supports that goal. Most banks, after all, are intent on boosting fee income—to free them from the vagaries of interest rate volatility. The problem with fee income is that traditionally much of it has been generated by things like overdraft fees, "gotcha" type fees that sometimes leave a bad taste with bank customers. These activities currently are "under pressure" from the Obama Administration, regulators, and lawmakers. Investment fee income is less incendiary. Senior bank management would like to see the investment division expand, become a larger contributor to the overall business.

M&T is a strong "business bank," notes Thompson, but it is selling private client services to less than 10 percent of the business owners and executives with whom it does business. Many do not even know that the bank offers private client services. Thompson would like to raise that penetration of the business owner/executive segment to 15 percent or higher.

The restructuring, which absorbed much of 2009, is now complete. Now they have to make it work, says Thompson. "2010 is all about execution," he says.

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