FIRST VICTORIA BANK'S
AWARD-WINNING BROKERAGE PROGRAM
Feature Article
Andrew Singer

MANY BANK brokerage programs have struggled recently against a flat, and sometimes even inverted, yield curve.

That has not been the case at First Victoria National Bank (Victoria, TX). The $1.18 billion (assets) institution, a subsidiary of FVNB Corporation, has developed an award-winning retail investments program despite a yield curve that has generally favored bank CDs and shorter-term investment instruments at the expense of fixed annuities, the mainstay of most bank brokerage programs.

How has this happened? First Victoria's is a variable annuity (VA) dominated program. Indeed, the program's ratio of variable annuity to fixed annuity sales is about 70/30, according to W. Steve Meacham, senior vice president and program manager. The program is less sensitive to the interest-rate environment than other bank programs.

Taking early retirement

Many of the manufacturing plants located on the Texas Coast where First Victoria operates, including a number of chemical factories, have moved overseas or shrunk their workforces in recent years. Many employees have taken early retirement, often exiting with a large chunk of money. This can present them with a quandary: Where to invest?

If they are really going to provide for their retirement, they will have to earn "equity market returns," says Meacham. "They can't make it on five percent"—that is, the sort of payout one often associates with fixed annuities. They might reach their targets with a VA, though, he suggests.

These early retirees often talk among themselves about investments. "How's your stuff doing?" The bank program's investment products have generally done well, so First Victoria is now getting some of that retirement business on the second go-around—that is, two or three years after the client opted for retirement.

The program's eight full-time Series 7-licensed reps generated gross revenues of $2.4 million last year. (See table on page 16.) They are budgeted for $2.7 million in 2007—a figure that they will probably exceed, according to Meacham.

The program has attracted some national attention. In 2006, the Bank Insurance & Securities Association named First Victoria Bank its Community Bank of the Year.

Origins in discount brokerage

The business began in 1995 as a discount brokerage program with no dedicated investment reps. All business was handled by a lone individual in the trust department. The bank's thinking at that time was: Our customers are doing stock trades. They might as well do them with us. The bank began working with PrimeVest (St. Cloud, MN), the third-party marketing firm (TPM). PrimeVest is still its TPM.

In July 1998, the bank hired its first dedicated investment rep, Melanie Weischwill. She had been a licensed sales assistant at another bank. She was "our first somebody," recalls Meacham. In fact, she was to become the bank's star producer. Weischwill was PrimeVest's top overall producer for 2006—among some 1,000 dedicated Series 7 reps in the firm's system—finishing the year with gross revenue of $1.36 million.

The junior broker program didn't happen overnight. It began with a focus on the program's top producer. 'We needed to shrink her book.'
— Steve Meacham, First Victoria Bank

By comparison, in 1998 the entire First Victoria program had commissions of $120,000.

The bank's top two variable annuity suppliers are the Hartford and AIG. The Hartford's fund managers have performed particularly well recently, notes Meacham, and the ING product, for much of the past year, offered a seven-percent guaranteed minimum, a big selling point. It means that an investor's principal doubles every 10 years.

The principal guarantee on the VA product is usually important for bank clients, says Meacham, though he warns that it is not a "magic bullet." He believes that First Victoria's customer-centric philosophy is the right approach—and would work whether the bank were offering this particular product or another. It's a matter of "making sure that we care about their situation and their needs," says Meacham.

Drawing on the local community

Where does Meacham find his investment sales reps? Many, including his top two producers, are from other bank programs. Meacham generally prefers to hire reps from the local community—people who grew up in the area and plan on living there. Local reputation matters to such individuals, and they typically have long-time ties to the community—all advantages, in his view.

This is not a particularly aged salesforce, either. His oldest rep is 40. All of the others are in their twenties or thirties. Melanie Weischwill is 33. Reps are compensated via salary and commission. It's the sort of structure that Meacham calls a "forgivable draw."

First Victoria has also developed a junior broker program. It didn't happen overnight. It began with a focus on Weischwill, the program's top producer. "We needed to shrink her book," recalls Meacham.

Telling a rep that he or she needs a junior broker isn't always easy. "They look at you a little funny." After all, you are telling them to, in effect, give away some of their business. "It's hard to get them to bite on it," says Meacham.

In this instance, it took about two years to convince the broker. "They have to have a stake in the success of it" in the form of over-ride commissions, but also in terms of their responsibilities. They have to be able to support the splitting up of their book of business.

Finding a suitable person to fill the junior broker position isn't always easy. "It has to be someone they [the senior brokers] want to work with," he says. It's a good idea to have the senior broker involved in the selection process.

Having taken on a junior broker, however, Melanie Weischwill is now in a better position to "manage her relationships," says Meacham. She now schedules sit-down appointments with six to eight regular clients every day. Her business is organized much like a doctor's office. "She's gotten smarter," comments Meacham. "She's learned to work her book." She's improved every year.

Weischwill has bought into the concept that "less is more." Indeed, she recently told Meacham, "I'd like to shrink my book more." She probably doesn't even need to be based in a bank branch now. She is "touching these same people over and over again." She has about 1,000 clients, and "she'd like to get it [down] to 200—300." Her junior broker alone has 400 clients. Indeed, her junior broker was recently moved to another branch, and a new junior broker will be brought on board shortly.

The program's eight full-time Series 7-licensed reps generated gross revenues of $2.4 million last year. They are budgeted for $2.7 million in 2007.

A junior broker, too, was recently assigned to Meacham's number-two producer. In this instance, the producer's sales assistant was simply promoted. Again, this makes things easier because they are already familiar with one another. (The rep will be getting a new sales assistant.)

"Like many in the industry, First Victoria has recognized the value in shifting from transaction-based business to relationship-based business," observes Per-Johan Berger, vice president of marketing for the Financial Institutions Channel at ING Advisors Network. Berger works with First Victoria. (PrimeVest is part of ING.) "The investment program has whole-heartedly embraced this evolving business model, with strategies like the launch of a junior broker program to help its most successful reps better service and meet the needs of their customers," says Berger.

First Victoria Bank was the top program in PrimeVest's $500 million to $1.5 billion asset-size category for 2006. The marketing firm works with nearly 600 institutions overall.

No client thresholds

The First Victoria program does not do any fee-based business. Not even star producer Weischwill sells fee-based products, although she holds an advisory license. Why not? The bank believes that fee-based business belongs in the trust department, says Meacham. "We don't do employee benefits plans, either."

That said, there are no thresholds above which his reps have to hand over clients to the trust department. "I've got multiple multi-million dollar accounts," he notes.

While all dedicated reps have Series 7 licenses, none has financial planning designation (although a number are interested in acquiring it). That hasn't kept them from talking with clients' attorneys, accountants, and so forth, however.

"It hasn't been a problem," says Meacham, who in the past ran a bank's trust department. When reps have questions about estate planning or wealth transfer, they often come to him.

Selling life insurance

First Victoria's brokers do sell life insurance and long-term health-care (LTC) insurance. Meacham regards this as a fertile area for growth.

Most of the life insurance policies are sold by Meacham's top two reps. Getting the other reps involved has often been a challenge. Why? The turnaround time for life insurance is relatively long. Whereas a variable annuity sale can happen in a week or less—from presentation of the concept to completion of the paperwork—life insurance, including underwriting, can stretch out for weeks and even months.

This often leads to frustration on the part of the sales reps. Most don't have as much assistance as First Victoria's two star producers. The top reps, after all, have sales assistants, and these assistants are quite useful for assembling all the required pieces that make up a life insurance transaction. They call doctors' offices, and sometimes they even pick up medical records, for example.

A rep can devote considerable time to a single life insurance prospect, and in the end find that the client doesn't even qualify for the policy. "I did a lot of work for nothing!" is often the refrain.

Bank referrals: no longer critical

Meacham was asked about bank referrals, often viewed as the lifeblood of a retail investments program. "They are no longer important to the success of the program as a whole," he says. "We get business off our business."

Most new business comes from existing clients. Yes, banks referrals may be important to a recently hired rep working out of a new branch. But that is more the exception than the rule.

The key to building a successful program is 'having the right people.' The bank's top producer got to be number one 'because she's driven. Our number two is driven.…I'm driven,' says Meacham.

There's not a lot of 'push-down from the top' with regard to referrals. Senior management has not decreed that a certain number of referrals must be made per branch per year, or some similar formula.

Meacham encourages his reps to cultivate relationships in the branches and to demonstrate a level of caring with regard to the bank's clients. Along these lines, it's been said that one "needs to find 12 disciples in the [bank] network" to succeed, he notes. Traditional bankers have to believe that referring clients will be good for their customers.

A trust background

As noted, Meacham has a background in trust—as a portfolio manager. He was hired by the bank to manage money. When he arrived in 1996, the bank needed someone to run the new discount brokerage program. "Steve understands investments. We'll hand it to him," was the thinking at the time.

It was only a part-time job initially. Later, when the program grew to three dedicated reps, it required on-site supervision. It could no longer be done from PrimeVest's St. Cloud, Minnesota, headquarters. Meacham acquired the necessary licenses and was made a principal of the operation.

'Like many in the industry, First Victoria has recognized the value in shifting from transaction-based business to relationship-based business.
— Per-Johan Berger, ING Advisors Network

There are real differences between a bank brokerage program and a more traditional wirehouse approach to selling.

The people who fit in well with First Victoria's program are often individuals who recognize that there "are a lot of different people" from whom they can get help, he says. They are used to working with a lot of people, and the atmosphere is collegial. Wirehouse reps, by contrast, are often more like "lone wolves."

Melanie Weischwill is clearly from the 'collegial' school. When one of her fellow reps was struggling for business, she worked with that individual, actually funneling some of her own business to the rep. "That's not the sort of thing that I can dictate," says Meacham.

He doesn't encourage the lone-wolf mindset at First Victoria, and he'd prefer to develop his own people. A lone wolf can turn off other people in the bank, which can have negative repercussions for the brokerage program as a whole. The program gets a bad reputation—all from a single rep's actions.

Meacham's number-two producer had worked previously at another bank; he was not successful. But he wanted to be successful, and when he came to First Victoria he was willing to accept help. That led to a turnaround. It is not the sort of experience often seen in a wirehouse environment.

Overall, First Victoria's focus on relationship-building has made it one of PrimeVest's highest-producing programs in its bank's asset class, says Berger, despite a relatively small number of reps. "It is also worth noting that two of PrimeVest's top-10 individual producers are based at First Victoria."

Asked about the key to building a successful program, Meacham answers: It is "having the right people." His top producer got to be number one "because she's driven. Our number two is driven.…I'm driven."