Fifth Third Securities: Bridging the Fee-Based Income Gap

Cover Story - Spring 2012 | By Andrew Singer

Howard Hammond, President and CEO, Fifth Third Securities

Program revenues increased 26 percent in 2010 and 11 percent in 2011 when they reached $123 million.

Hammond didn’t change things all at once. To diversify the product menu at Fifth Third, he first had to find new sales managers and financial advisors (FAs)—advisors who were as comfortable with individual bonds and managed money ‘solutions” as they were with fixed annuities and mutual funds.

Turning over managers and advisors

In Hammond’s first full year, Fifth Third Securities’ management team turned over 70 percent and its advisor force almost as much—65 percent to 70 percent. Fifth Third Securities had about 260 financial advisors at that time. (Today it has 350 advisors, which Fifth Third calls ‘investment executives,’ as well as 500 licensed bank employees, or LBEs.)

Hammond was out pounding the streets for about two years in quest of new brokers. He admits that he did not see much of his wife and kids that first year while the program was in transition.

But things changed. Today, less than 20 percent of program revenues come from annuities (fixed and variable), while 21 percent are generated by ‘fixed income’ instruments.

Moreover, Fifth Third Securities also derives 13 percent of total revenues from life insurance now—a large share for a bank program—and 8 percent from managed money (up from 3 percent in 2007).

Annuities do have a valuable role to play still in bank investment programs, acknowledges Hammond, especially for baby boomers, who often require ‘lifetime income’ for retirement. (For the record: Fifth Third reported $31.7 million in “fees and commissions from annuity sales” to the Federal Reserve Board in 2011.)

A Citibank veteran

Hammond worked 19 years at Citigroup—10 years as a financial advisor, nine as a manager in various investment groups within the organization. Citi’s program was clearly in his mind when he succeeded Phillip E. Chambers as head of Fifth Third’s broker/dealer. (Chambers had followed Jordan Miller, a former BISA director and now president and CEO of Fifth Third Bank, Central Ohio.)

Much of Fifth Third’s investments program is, in fact, modeled on Citibank’s—the old Citicorp Investment Services program before it was merged with Smith Barney. In building Fifth Third Securities, “We took what we liked from Citibank,” recounts Hammond.

Citi then had a diverse product set—fewer annuities, more managed money than other banks. Indeed, it had a managed money program 16 years ago when most retail bank programs weren’t even thinking of such a thing, recalls Hammond. Citi was also selling life insurance.

A key part of “changing the story” at Fifth Third was hiring new sales managers. Not surprisingly, Hammond found them at Citibank and other large institutions like JP Morgan Chase. Robert Corsarie, now regional investment manager for Fifth Third Securities’ Florida, Atlanta, Tennessee, North Carolina and Kentucky affiliates, for instance, worked earlier at both JP Morgan Chase and Citicorp Investment Services. James Fredrikson, now regional investment manager for Illinois, Indiana and Michigan, was chief investment officer at Citibank, and before that, regional investment officer at Citicorp Investment Services. Both were key players in the change process, says Hammond.

As for the new advisors, many came from Edward Jones, the regional brokerage firm, others from wirehouses. It was easier to recruit experienced reps once Fifth Third Securities built its new fixed-income platform, recalls Hammond. (In developing this key product platform they were able to leverage off Fifth Third Capital Markets Group’s institutional fixed-income platform.)

The timing was fortuitous. Fixed-income products were enjoying a boomlet that has continued to the present. Clients in the segment that Fifth Third Securities is targeting, the mass affluent (bank clients with $250,000 to $1 million in investable assets), often prefer to purchase individual bonds—as opposed to mutual funds, say—and the bank’s advisors “need to speak that language.”

What about broker morale during the transition period? “It was challenging,” concedes Hammond, but “the quality advisors saw hope; they saw a change for the better.” They recognized that the bank had a vision for the future.

The transitional period encompassed 2007 and about half of 2008. “That was the toughest period.” Hammond gravitated toward running as his personal “stress buster.” He ran the Boston Marathon in 2008, finishing the 26-mile, 385-yard race in three hours and 50 minutes, a quite respectable time.

Today, financial advisor turnover at Fifth Third is not particularly high—about 15 percent annually. Only 7 percent to 8 percent of that is the result of under-performance. The turnover rate goes down each year, and Hammond gets good marks from his peers for advisor management. “His advisors like him,” the CEO of a rival bank-brokerage operation told us.

In Hammond’s first full year, Fifth Third Securities’ management team turned over 70 percent and its advisor force almost as much — 65-70 percent.

With regard to recruiting new Fifth Third reps, the “sweet spot” from a GDC (gross dealer concession) standpoint is $250,000 to $600,000. That is, a good candidate will generate about $250K to $600K in gross annual revenues. Hammond has recently recruited more advisors from Merrill Lynch, a good source after that firm changed its compensation structure. (Merrill Lynch, owned by Bank of America, decided that it is simply not profitable to keep advisors who are producing less than $400,000 in annual GDC, an industry source told us.)

Fifth Third Securities’ program revenues increased 26 percent in 2010 compared with 2009, and 11 percent in 2011 over 2010.

Managed money

All of Hammond’s advisors have their managed-money licenses (e.g., Series 65, Series 66), and the broker/dealer does about $30 million a month in managed money, good for an operation of Fifth Third Securities’ size.

Hammond would like to keep growing that share. The managed money space is often “a great answer for that mass affluent client.” He doesn’t really like to set targets in this area, but if managed money were to reach 20 percent of program revenues, that would not make him unhappy.

The current breakdown within the managed money space is:

• Mutual Fund Wrap (mutual fund strategists and an advisor directed mutual fund program): 90%;
• Managed Accounts (SMA, MMA, UMA): 10%

Fifth Third Securities’ mass affluent segment ($250,000 to $1 million in investable assets) has increased in number of client household by 15 percent over the past five years. (Clients with more than $1 million in investable assets are served by Fifth Third’s private bank.) Senior bank management is pleased with this sort of growth; the mass affluent segment has become the focus of many banks these days, not just Fifth Third Bank.

Life insurance

Selling life insurance has traditionally been viewed by bank-based brokers as something of a “chore.” The product is not familiar to many advisors, and the sales process can take time. But Hammond felt that life insurance was so valuable to Fifth Third’s clients from a protection and financial planning standpoint that he has insisted his advisors focus on it.

There wasn’t much tangible progress at first. Advisors were often hesitant to initiate difficult client discussions, like “How do we protect your family when you’re no longer here.”

Some advisors were uncomfortable talking about something they didn’t really understand. Others tried it once and threw in the towel.

But today about 70 percent of Fifth Third’s advisors are selling life insurance. The bank doesn’t set specific life insurance targets or goals. “We don’t really use a stick,” says Hammond. But they do use an outside specialist firm, Ash Brokerage, an insurance brokerage general agency (BGA) based in Fort Wayne, Indiana, as well as 18 internal wholesalers, which it calls internal retail insurance specialists, to support and train the advisors. Life insurance performance, too, figures in the annual compensation of the B/D’s sales managers.

Fifth Third arms its advisors with questions to ask clients. One of the simplest: “Do you currently have insurance?” Advisors often work side by side with life insurance specialists. When advisors see a specialist go through the sales process four or five times, they often become more comfortable with the process and may go a step further the next time—such as attempting a sale solo, not even calling in the specialist.

Fifth Third’s leading life insurance carriers:

• Liberty Estate Maximizer: whole life, simplified issue
• Hartford Bicentennial UL: universal life, fully underwritten
• One America—Asset Care: whole life, with accelerated death benefit for qualifying long-term care expenses

As noted, Hammond does not set life insurance sales goals, and he doesn’t like product goals generally. “I don’t believe in it.” He doesn’t want to distort the conversation the advisor is having with the bank client. “I want them to have clarity with that client; I wouldn’t want to cloud their judgment” by worrying about this or that monthly product goal or target.

At present, fixed annuities account for 6 percent of program revenues, and variable annuities account for 14 percent.

Fifth Third’s leading variable annuity carriers are:

• Jackson National Life Perspective II
• Nationwide Destination
• Pacific Life Voyages

The B/D’s leading fixed annuity carriers in terms of sales are:

• Western National Life Advantage
• Western & Southern MultiRate
• Jackson National Life Select Annual Reset

Financial planning

The bank’s reps make good use of financial planning software, according to Bob Corsarie, speaking at BISA’s March annual convention. “When it’s on the desktop, and it’s free [to the client], it gets a lot more usage.” Investment professionals for Fifth Third Securities have access to desktop tools provided by National Financial Services and Thomson Reuters.

The key to building a successful program? ‘Giving advisors everything they need to face off with clients,’ including life insurance, SMAs, wrap accounts, and fixed income investments.

With fee-based products, Fifth Third pay its advisors 100 percent of the first year fees up front. They teach their managers to coach their advisors. Every manager in Corsarie’s area has been a producer, which he thinks is a plus.

They like to recruit advisors with about three to five years of experience from wirehouses, said Corsarie.

Fifth Third continues to stack rank its advisors, although it modifies this by length of service. Those who have been with the bank longer are expected to perform better. If advisors falter, they are coached to get them up to speed, says Hammond.

Managing advisors, LBEs

With regard to Fifth Third’s platform program, its 500 LBEs are basically paid the same whether they sell or refer investment products. The bank doesn’t want its LBEs to sell in situations where they don’t have the necessary expertise; it wants them to be comfortable calling in financial advisors or life insurance specialists, as the case requires.

Fifth Third surveys its dedicated advisors every year. Has the advisor’s manager displayed positive coaching characteristics? If lacking, they’ll go back to the managers and speak with them. How managers can make their advisors better is a frequent refrain at the bank.

Hammond himself typically speaks with 20 to 30 reps a month. He wants their input, too. “Did you ever think of doing this?” they might ask him. “Why don’t we do this?” Building a two-way communication channel is “critical,” in his view.

More client ‘stickiness’

From a senior bank management standpoint, the most valuable aspect of a retail brokerage business is often what it does for client “stickiness,” creating more reasons for a client to stay with the institution. Fee income is important, too, of course, but the stickiness factor is probably most critical when it comes to support from senior bank management, according to Hammond.

What is the key to building a successful program? “Giving advisors everything they need to face off with clients,” says Hammond. That means a full product suite that includes life insurance, SMAs, mutual fund wrap accounts, and fixed income investments.

You also have to make sure that you’ve hired quality people that will represent the bank well. After all, notes Hammond, “those 350 [financial advisors] are the face of Fifth Third.”

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