Bank of the West: Building Out Its Advisory Platform

Cover Story - Summer 2012 | By Andrew Singer

Jim Fujinaga, president and CEO of BancWest Investment Services

The days of the exclusively ‘transactional’ broker—selling only annuities and traditional mutual funds—are gone. Managed money at BancWest Investment Services grew 50 percent last year.

That said, Fujinaga is also a proponent of bank platform programs, which are sometimes viewed as ‘old school’—part of the transactional-product-dominated legacy of yesteryear.

How LBE programs can work

A 25-year veteran of the financial services industry, Fujinaga’s prior experience included positions with JP Morgan/Chase Investment Services, Wells Fargo Bank Private Client Services, and Citibank/Citicorp Investment Services. He joined BWIS in 2009 as senior vice president and division sales manager, coming over from Chase.

BWIS has 125 financial advisors (FAs) and 80 licensed bank employees (LBEs), the latter based mostly outside of California, a legacy from Bank of the West’s 2005 acquisition of Commercial Federal (Omaha, NE). There was no LBE program at all in California when Commercial Federal was acquired.

Bank of the West operates more than 700 branch banking and commercial office locations in 19 Western and Midwestern states. It is an affiliate of First Hawaiian Bank and is owned by France’s BNP Paribas Group.

On successful platform programs

Fujinaga, as it happened, worked with four different platform programs prior to Bank of the West’s. “When it does work, it works really well,” he says of such programs. Certain elements must be present, however. The program must have senior management support. A ‘team-selling’ compensation structure is also important.

The interests of the financial advisors and LBEs have to be aligned—otherwise there will be conflict as both compete for the same client. Banks that view an LBE program exclusively as a low-cost distribution channel will sometimes ignore this problem. The platform program “can’t be squeezed for profit,” a trap that some banks fall into, suggests Fujinaga.

In some bank brokerage programs, half the GDC from an LBE’s sale might go to the FA’s grid. At BancWest, it is closer to 90 percent.

At BWIS, LBEs typically have Series 6 licenses and sometimes Series 7 licenses in addition to life insurance licenses. They sell mutual funds, fixed annuities, variable annuities, simplified life insurance, and sometimes market-linked CDs. Traditionally, their big product was fixed annuities, but with interest rates so low, fixed and variable annuity sales are now roughly equivalent.

LBEs receive the same compensation (more or less) whether they sell or refer customers. A financial advisor will typically have four LBEs under his/her tutelage, and the team will “huddle” twice a week, talking about sales, products, and other matters. The LBEs have their own compensation grid.

FAs have a modified grid for LBE sales. In some bank-brokerage programs, half the GDC from an LBE’s sale might go to the FA’s grid. At BancWest, it is closer to 90 percent. It isn’t 100 percent because Fujinaga doesn’t want to unduly favor FAs who work with LBEs over FAs who do not work with LBEs, as is the case with many FAs based in California.

For the LBE effort to succeed, it has to be ongoing and persistent, adds Fujinaga. If a bank has a CD promotion one month and a checking promotion the next month, say—both of which are “all encompassing” so no one is selling annuities or other investment products—then the program will quickly run out of steam, he notes.

It’s important to recognize the success of effective LBEs. Fujinaga makes sure to call attention to outstanding LBE performance every month in his regular sales conference call.

The LBE program generates only 5 percent to 7 percent of program revenues, but that can be expected when the number of LBEs is so low relative to FAs. “It’s not a core business,” admits Fujinaga, “but we appreciate what they do.”

Overall, where BWIS has an LBE program, “it is flourishing,” says Fujinaga, though it’s not likely to be expanded substantially in the near future.

A growing advisory platform

As noted, Bank of the West has been focusing more on its advisory platform these days, seeking to broaden product distribution. Previously, the wealth management group’s investment product offerings could be accessed by trust clients alone; now they are available to B/D clients, particularly the mass affluent segment — the ‘sweet spot’ of many bank-brokerage programs.

The pendulum has been swinging in recent years toward non-proprietary advisory products, and Bank of the West shares in that trend. “It’s about flexibility and choice,” SVP Morris tells us. The idea is to deliver products and services to clients “how they want it.”

There has been more focus recently on liquid alternative investments, says Morris, “an interesting space,” relatively untested, but where much is happening. It will be a challenge to teach advisors “how and when” to use such products — like sector rotation portfolios or country rotation portfolios that might invest in 20 countries out of a list 28 countries, including emerging markets.

The strategy is typically binary: The portfolio is either ‘in’ or ‘out’ of a country (using ETFs) at any given time depending on its reward/risk profile.

These sorts of products are of growing interest to the mass affluent client segment, suggests Morris, who notes that minimums have come down generally with advisory products. There’s less emphasis on traditional SMAs (separately managed accounts), which might have required a $100,000 minimum for equity accounts or $250,000 for fixed-income accounts. With some of the newer advisory products, $50,000 minimums are not uncommon.

Bank of the West uses Envestnet, Inc. (Chicago), a provider of integrated wealth management solutions. It provides the bank’s advisors access to managed accounts, mutual funds, exchange-traded funds (ETFs), and alternative investments. Morris’ hope is that the expanded advisory platform will attract outside advisors—that is, they will want to come and work for Bank of the West.

Both trust and brokerage now report to the senior EVP of the Wealth Management Group, John Bahnken.

As noted above, ‘managed money’ solution revenues in BWIS doubled last year. How long will it take for fee-based revenues to comprise 50 percent of program revenues (Fujinaga’s goal)? Five years? Sooner than that, he answers, particularly with the effort that the retail bank has put forth, where brokerage fees are now recognized as a key part of growth.

While most of BWIS’ business remains in annuities and mutual funds, managed money and life insurance are its fastest growing areas. Fujinaga wants to double life insurance in 2012. It currently comprises 12 percent of program revenues. He wants it to be 20 percent.

Among his leading suppliers are Jackson National Life, Nationwide, and Pacific Life in the variable annuity area. Among leading fixed-annuity carriers are Symetra and OneAmerica, whose hybrid long-term care insurance (LTC) product is popular.

In the life insurance area, BancWest has three in-house insurance specialists, each with at least 25 years of experience, including former million-dollar producers.

BWIS’s financial advisors sell life insurance and LTC, both simplified and fully underwritten. Unlike many other bank investment programs, the majority of business (about 60 percent) is fully underwritten (e.g., life insurance for estate planning, business succession planning, etc.) Fujinaga also uses several BGAs (brokerage general agencies) to assist in life insurance sales, including Insurance Designers of America LLC.

Eliminating silos

John Morris, Bank of the West

FAs, a different group from PCAs, can also work with the high net worth customers, but not all do. This requires a more experienced, sophisticated advisor—one who is comfortable with a holistic, client-centric relationship, suggests Fujinaga. Not everyone is equipped to do that.

There has been a recent focus on liquid alternative investments, ‘an interesting space’ where much is happening. It will be a challenge to teach advisors ‘how and when’ to use such products. — John Morris, Bank of the West

In April, however, the bank launched its wealth financial advisor (WFA) program. Seven WFAs are working with private client advisors (PCAs) on wealth management teams, focusing on the more affluent client segment—business owners, professionals, wealthy retirees—individuals with at least $500,000 in investable assets, often more. The PCA is the team quarterback. If a client has credit needs, the PCA brings in a private banker. If the client requires retirement income planning or investment advice, the PCA brings in one of Fujinaga’s WFAs.

WFAs typically have both wirehouse and bank brokerage experience, and all have been in the industry for more than 10 years, although that is not a requirement. They have to be experienced with managed money, though, as well as life insurance, including estate-planning issues, so they can talk knowledgeably about second-to-die insurance coverage or key person insurance, for example. They also receive training with regard to the bank’s trust services—Fujinaga has used Cannon Financial for that training—so they are conversant with that side of the business, too. They are provided with financial planning software, using NaviPlan and/ or MoneyGuidePro.

The majority of life insurance business (about 60 percent) is fully underwritten, including coverages for estate planning.

The low interest rate environment has made life difficult across the board, not only for fixed-annuity suppliers and sellers, but also for distributors of single premium life insurance and MLCDs, notes Fujinaga. It will be hard duplicating 2011 revenues in 2012, he allows, but that’s why this is a good time to make the transition from transaction-type business to a fee-based one, i.e., with more managed money and life insurance. “That is as good a time as any” to make that migration (which can often bring short-term pain), suggests Fujinaga.

Recognition of sales success is critical in building an effective program, in Fujinaga’s view. BWIS’ top financial advisors are invited to a national sales conference each year, typically held at a resort, this year in Southern California. They make sure to go to “nice” places—an ocean beach setting, for example—so the invitation is ‘sought after’ among advisors.

In reflecting on the keys to developing a strong program, Fujinaga notes that “It all starts and ends with people,” although it’s also important to have the right organizational structure. You need to hire the right advisors, educate them well, set clear ground rules, and run things cleanly from an operational standpoint—making things as easy and simple as possible for the end customer.

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