What U.S. Bank is trying to do is to “create a culture, a dynamic environment that attracts people.” Financial advisors will have the opportunity to grow their books of business faster than they would at other places. Moreover, U.S. Bank is “very disciplined” when it comes to developing ROI (return on investment) models, he adds. “We like the results we’ve gotten so far.”

Even Jordahl allows, however, that it may be two to three years before one has a clear answer as to whether U.S. Bank’s recruiting gambit has succeeded.

50 percent turnover in 20 months

U.S. Bank has about 500 financial advisors, and that number has remained fairly constant in recent years. But it belies the changes that have occurred.

“We have replaced about half of our financial advisors in the last 20 months,” says William (Bill) Benjamin, CEO, U.S. Bancorp Investments, Inc. and U.S. Bancorp Insurance Services, LLC (Minneapolis), as the program has moved from a transaction-sales model to a financial-planning model.

Advisor productivity has increased accordingly. The new FAs produce at a rate that “is about two-and-a-half times higher than the FAs let go,” says Benjamin, whose program is focused on U.S. Bank’s affluent client segment, defined as clients with $100,000 to $3 million in investable assets.

When it comes to recruiting new FAs, the bank employs strict criteria. They look at current product mix. Annuities (fixed and variable) should be less than 35 percent of overall revenues. U.S. Bank wants to be sure they are doing financial planning, or at least moving in that direction.

“This is not to say that annuities are bad,” adds Benjamin, but it’s well known that most banks have become “annuity sales shops.” Meanwhile, studies suggest that the typical affluent investor has only 8 percent of investments in annuities, with the balance—92 percent—in other investment products. “We want to capture that other 92 percent.”

Benjamin seeks advisors, therefore, who are already doing fee-based business, like separately managed accounts (SMAs), and fixed-income products, like bond ladders. “Our business is no more [primarily] about selling annuities to customers.” (For the record, U.S. Bancorp, the parent company, reported $56 million in “fees and commissions from annuity sales” in 2010, down from $100 million in 2008.)

Regarding the product mix, the climate for annuity sales has been poor in recent years—mainly because of low interest rates. But that made for an almost “perfect storm” in terms of transitioning to a planning model. Annuities sales dropped 40 percent at the bank during the economic crisis, which didn’t really bother Benjamin much.

Fee-based product sales picked up the slack and fee-based is the B/D’s “fastest growing platform” now; it has far “outpaced expectations” in recent years, says Benjamin. Fixed-income product sales—things like high-grade municipal bonds—have also grown rapidly.

Where would he like to be, product-wise? Benjamin would prefer annuities to remain below 35 percent. Fee-based revenue is now about 30 percent to 40 percent, but it could eventually reach 60 percent. If regulators require broker/dealers to move to a fiduciary standard, that will drive that evolution faster still. For his part, Benjamin supports any development that helps to “put the client relationship first”—as opposed to just moving product.

‘That’s a program that I keep my eye on,’ the B/D president at a Top 20 bank told us.

Current fee-based income is split about evenly between managed money and trail commissions, says Benjamin. Most of the managed money is in SMAs. U.S. Bank has a flexible program, with both inside and outside money managers. Clients with as little as $100,000 in investable assets can qualify for SMAs. The average account size in the B/D is about $220,000.

U.S. Bank has four client segments: 1) ultra high net worth (more than $25 million in investable assets), 2) high net worth ($3 million to $25 million in investable assets), 3) affluent ($100,000 to $3 million in investable assets), and 4) mass market.

Benjamin’s group is mainly focused on the affluent segment, although he also supports the mass market. (Sometimes, too, they team up with bankers in the high net worth segment.)

Some of Benjamin’s FAs will not take a client with less than $500,000 in investable assets. Others will gladly take on clients with $100,000 in investable assets.

Recruiting advisors

The bank has recruited new advisors from other bank programs, regional brokerage firms, independent brokers, and wirehouses. Jordahl told Dow Jones Newswire in April that he expected to boost the bank’s corps of financial advisors from 489 to 600 by the end of the year. “We are hiring as fast as we can,” he said.

What is the recruiting climate like today? “It’s more competitive now,” Benjamin told us—certainly compared with several years back when many wirehouse FAs were jumping ship, their companies tottering amid the economic crisis. Today, a lot of FAs are “locked up” within existing firms.

To find new reps, U.S. bank uses both internal and external recruiters, as well as cold callers.

Training

U.S. Bancorp Investments spends a lot of time and money to train FAs—using Cannon Financial to help them in this area. Benjamin also has a “big class” enrolled at one of the universities in the Twin Cities area “starting on their CFPs” (Certified Financial Planner designations).

Benjamin, who began his financial services career at Piper Jaffray, now part of UBS, observes, “training never stops at a wirehouse,” and he is adopting some of that training philosophy at the bank.

‘It’s a terrific time for bank wealth management units,’ says Jordahl. ‘We’re thinking of this as a growth business.’

The bank’s advisors use SunGard’s PlanningStation software. About 75 percent of FAs are now using the financial planning software. Plans can be as brief as 10 pages and as long as 100 pages, depending on the number of modules used. FAs typically sit down with clients and figure out a retirement plan or hash out an asset allocation plan. Insurance is another module. (“I’ve never heard of an estate plan that doesn’t include insurance,” comments Benjamin.)

The number of plans is rising fast. In the first four months of 2011, U.S. Bank generated as many financial plans as in all of 2010, Benjamin reports. It helps, too, that management provides incentives for advisors. FAs must do a certain number of financial plans, for example, if they want to attend the bank’s annual President’s Dinner for top sales performers.

A team approach to affluent clients

The bank recently developed a new team approach toward serving its Private Client Group, which it defines as individuals with $100,000 in investable assets or $250,000 in gross assets held with U.S. Bank (e.g., deposits, loans, investments—but not primary mortgages).

The first phase of the Affluent Growth Strategy, as it is called (“a new platform to serve our best clients,” according to the bank), began in 2010 in the bank’s metro (large) market segment.

Teams typically include a private banker who acts as a relationship manager (although any team member could be the ‘quarterback’ if appropriate), and others such as a financial advisor (from Benjamin’s team), a bank branch manager, a small business lender, and a mortgage banker. (Trust officers may be added later, but they currently do not serve on metro market teams.)

When new teams were first introduced in Seattle in February 2010, the first roll-out area, Benjamin devised a training exercise. Team members gathered around tables. Members had been told to ‘bring in’ their best clients, figuratively speaking (that is, via paper documentation). In one exercise, team members were asked to introduce another member at the table to their ‘best client.’

For example, “This is Cheryl, my friend. She’s a private banker with U.S. Bank. She does this, this, this, and this for my clients. Cheryl has three kids. They play soccer. I know your kids play soccer ...”

Each member was also asked to explain to other team members how they “delivered value to their best clients” and who those ideal clients are. They each said something personal about themselves, too, like a brief account of their hobbies.

Overall, it was as if “a light was going off,” recalls Benjamin. Team members had seen John and Ted working in the branch, for instance, but never knew before exactly what they did. Now they knew.

With the Seattle roll-out, they tracked both a client test group and a control group. They invited 90 percent of those eligible (e.g., $100K in investable assets) to join the Private Client Group and kept 10 percent outside, as the “control” group. Then they analyzed the number of products sold, the investments growth, loan growth, and so on. The gains from the team approach were “significant,” recounts Benjamin. “Where it works, the growth is unbelievable.”

(According to a recent U.S. Bank investor presentation, “Private client connect line satisfaction scores [as a result of the Affluent Growth Strategy] have improved from 71 percent in second quarter 2009 to 82 percent in second quarter 2010, and customer attrition was reduced by 13 percent.”)

Bank teams meet weekly in the metro markets, assuming this is viable. (A location might have one private banker for every three financial advisors, and that private banker could be stretched attending weekly meetings with three separate FAs.) Some details still need to be worked out. Meanwhile, the program has already been rolled out in all 23 metro (major) markets, areas like San Francisco, Denver, San Diego, Phoenix, St. Louis, etc.

‘We have replaced about half of our financial advisors in the last 20 months,’ says Benjamin.

U.S. Bank has two primary market segments: 1) The metro, large city market, and 2) the community market, which encompasses smaller cities like Sioux Falls, South Dakota, and Bend, Oregon.

The private client program is being rolled out now in the community bank division. Here team composition is a bit different: members often include a branch manager, commercial banker, trust manager, portfolio manager, and financial advisor.

Because there’s a closer alignment of brokerage and trust in the major city markets, explains Benjamin, a trust officer is not typically included on those teams. There’s not as much need to break down silos. In the smaller, ‘community bank’ markets, by contrast, there is often more competition between trust and brokerage—hence the need to include both on teams.

Life insurance

U.S. Bank has been aggressively growing its life insurance business. Thirty percent of all policyholders in the United States are paying too much for their life insurance, it’s been said, or else they have life insurance that isn’t going to do for them what they think it will do, notes Benjamin. There is a big opportunity for banks in this area, he suggests.

U.S. Bank works with three national brokerage general agencies (BGAs): 1) Time Financial (Woodland Hills, CA), 2) Highland Capital Brokerage (Birmingham, AL), and 3) Capitas Financial (Minneapolis). BGA wholesalers often attend client meetings with FAs—in the bank, the client’s home, or wherever the client wants to meet.

The FA typically “opens the door” for the BGA wholesaler. The latter offers to the client a level of expertise that the FA simply doesn’t have. The bank does give up a certain percentage of fee income, of course, by using a BGA, but overall program volume is higher, says Benjamin. The bank works with some 200 individual outside insurance specialists overall. FAs have varying levels of comfort with life insurance, Benjamin notes, and the BGAs adapt accordingly. The 200 insurance specialists tend to “hook up” with the financial advisors with whom they have developed a certain comfort level.

The bank uses LTCI Partners, LLC for long-term care insurance (LTC), an area where U.S. Bank is regarded as a bank industry leader. LTC still accounts for a relatively minor portion of total life insurance revenues generated by the bank, however. Most life revenues are from “underwritten insurance” (in contrast to simplified issue life insurance) used primarily for wealth transfer purposes—whole life, universal life, and variable universal life insurance.

What percentage of overall B/D revenues is from life insurance? Benjamin wouldn’t specify. But if 5 percent is considered good for an active bank program, then U.S. Bank is “significantly above that,” Benjamin told us.

Tapping the mass market

Benjamin’s group also supports the institution’s “mass market” (i.e., clients with less than $100,000 in investable assets) brokerage efforts. The bank has been developing a three-pronged strategy for the mass market: a) Internet distribution, b) call center manned by Series 7-licensed advisors, and c) the branch-based platform bankers.

U.S. Bank has 300 licensed bank employees (LBEs) who sell fixed annuities and mutual funds, focusing on retail customers. U.S. Bank once had many more LBEs—closer to 1,200. What happened? In recent years, U.S. Bank has posted some very “aggressive” CD rates in an effort to gather more deposits (unlike many institutions that have been shedding deposits recently), Benjamin recounts. The bank’s platform personnel had their hands full with those CDs. Investment product sales became less of a priority.

An IBM veteran

Financial services is Benjamin’s second career. He took a job with IBM out of college, and went through that company’s training program. Although he had a “great time” at IBM, when he later attended the University of Minnesota’s Carlson School of Management, he became friendly with a classmate who worked at an investment bank, was intrigued by investment banking, and decided to change industries. He went to work for Piper Jaffray after securing his MBA, working mostly on the institutional side. Piper Jaffray was acquired by UBS and added to its wirehouse division in 2006. Benjamin left UBS in 2007.

He eventually found his way to U.S. Bank, which was looking to make some changes—intent on breaking down product silos, among other things. His wealth management background resonated with the growing Minneapolis-based bank, he recalls.

The quality of the typical client experience these days is “shocking,” says Benjamin. He recently stood before an audience and asked: How many of you own life insurance? Almost all raised their hands. When he asked how many received a call from their agent after closing on their insurance policy, however, only a few raised their hands.

‘No bank has been able to make the big-upfront-money model work,’ the consultant told BISM. You’ll never get your money back.

Conversely, he asked how many received a call from their mortgage banker after they closed on their house? Again, only few raised their hands.

How many in the audience had a financial advisor? Almost everyone. But how many had received a call from their advisor in the last year? Half year? Last month? Very few.

This lack of attention to the client, however, presents banks with an opportunity. “What if someone took the time to get to know the client?” And what if one could develop a strategy to sell not only investments, but also insurance, mortgages, small business loans, other products and services? Wouldn’t that “simplify a person’s life?”

Senior bank management certainly thinks so. Terry Dolan, vice chairman of wealth management and securities services at U.S. Bancorp, told Bank Investment Consultant in April that the company expects to increase wealth management revenue 8 percent to 9 percent annually over the next three to five years.

“Banks can be much larger players in the wealth management space,” Jordahl told us, adding that it’s a large market, a growing market, and a fragmented market. No one company or companies has a dominant share. Investor confidence in the markets is still not high, but it’s recovering. Overall, “It’s a terrific time for bank wealth management units,” Jordahl says. “We’re thinking of this as a growth business.”

Where does brokerage fit in? “We believe there is a convergence taking place” between trust and brokerage, says Jordahl. And that really isn’t so surprising. Clients don’t really care if a product is delivered from the trust silo or the brokerage silo. What they care about is finding solutions to their problems.

Again, it will probably be two or three years before the industry has a clear answer to the question of whether U.S. Bank’s aggressive recruiting strategy—of seeking top FA talent and paying generously for it upfront—is a winning one. It is still a work in progress. “We’re a 150-year-old ship” attempting to transform itself, admits Benjamin.

In the meantime, the East Coast bank B/D manager cited at the beginning of this article remains “intrigued” by what U.S. Bank is doing in the brokerage and wealth management space.

“That’s a program that I keep my eye on,” he told us.

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