NATIONAL PENN'S 'TEAM' ORIENTED RETAIL INVESTMENTS PROGRAM
Cover Story
Andrew Singer

NATIONAL PENN BANK'S retail investments program has been through several incarnations since the mid-1990s, but lately it seems to have assumed a comfortable guise. It is increasingly selling 'advice'—as opposed to just 'product'—and is forging stronger links with the bank at large.

As of December, the program was projecting $3.0 million in revenues for 2007, up from $1.4 million only two years earlier.

The parent organization, National Penn Bancshares (Boyertown, PA), a $5.76 billion (assets) financial services company that operates 81 bank branches, announced in September a merger with KNBT Bancorp, another mid-size Pennsylvania bank. While it is still too early to gauge how the merger will affect the brokerage program, it seems clear that National Penn (the dominant partner in the merger) remains committed to building alternate sources of fee income, including trust, brokerage, and insurance.

The program was projecting $3 million in revenues for 2007, up form $1.4 only two years earlier.

National Penn's retail investments program currently has 15 dedicated sales reps, 11 of whom were hired in the past 18 months. All have Series 7 and Series 65/66 licenses. The program is "now stacked with the right fishermen to hunt the fee-based waters," says program manager J. Richard Price, who hired 13 new reps since taking the helm in January 2006, but lost two over the most recent 12-month period. Recent hires have come from Ameriprise, Merrill Lynch, Morgan Stanley, Wachovia, and PNC, among other places.

A stint with Homeland Security

While bank brokerage program managers are a varied lot and arrive at their current positions from assorted backgrounds and institutions, Price's career path has been marked by an unusual detour. Before joining National Penn in 2005, he was working for the U.S. Department of Homeland Security.

Homeland Security? Price has a 'first responder' background that goes back to the 1970s and early 1980s, when he ran his hometown's volunteer fire department and ambulance services. (First responders are individuals who, in the early stages of an emergency, are responsible for the protection and preservation of life, property, and the environment. They can include police, firemen, emergency medical services, or lay rescuers.) He was contracted to train groups of first responders—some as large as 100—to cope with 'catastrophic' situations involving weapons of mass destruction, such as the explosion of a 'dirty bomb' in a major U.S. city.

All reps have Series 7 and Series 65/66 licenses. The program is 'now stacked with the right fisherman to hunt the fee-based waters.'

Price served in this capacity for two-and-a-half years before returning to financial services, where he began his career in the mid-1980s at IDS, the American Express company.

Things aren't quite so dramatic when working in a bank, but some of the lessons learned about teamwork and commitment are still valid, observed Price in a recent interview.

A rapidly growing program

As noted, the brokerage program has been through several incarnations. National Penn entered the retail investments arena in the mid-1990s, working with Compulife, a well-known third-party marketing firm (TPM) in the 1990s. Later, the bank internalized the program and formed its own broker/dealer (B/D), Penn Securities.

National Penn gave up its broker/dealer in December 2004 and now clears trades through PrimeVest, based in St. Cloud, Minnesota. By giving up the B/D, they were able to take 'off-the-table' operational issues—like compliance and due diligence—that come with owning a B/D, but which often drag down profitability.

Today, National Penn ranks among PrimeVest's top 20 programs, says Price, and it is the fastest growing program in that elite group, with 73-percent year-to-year growth.

Retaining reps

Program success is premised on keeping reps in the program for the long term, in Price's view. About 24 to 30 months is required for a rep to first "turn on," he figures, and about six years is needed for a rep to become really successful in the industry. National Penn's reps have been in the industry anywhere from 30 months to 20 years. They are currently averaging about $20,000 per month in revenues, about the national average, which isn't bad considering their relatively short tenure (on average) with the bank.

In hiring sales reps, Price says he'll often take a chance on "folks with the right 'culture' and a good work ethic"—that is, people intent on "doing the right thing" for clients, and who don't shrink from 50-hour work weeks. Price and his staff provide much coaching, including one-on-one conversations (sometimes over the telephone), and quarterly sales meetings that are supported by PrimeVest.

When Price took over the program, 70 percent of sales were coming from bank referrals. That was too high in his view. They've worked to generate more revenues from reps' existing books of business, including the staging of client education events. Today, 30 percent of new business comes from bank referrals.

National Penn is making a concerted effort to grow its fee-based and insurance businesses. At present, life insurance and fee-based products account for only four percent of revenues, so they have a way to go. "We hope to grow that more and more next year," says Price.

Along these lines, they've developed a compensation plan that encourages sale reps—National Penn calls them "IEs" (investment executives)—to write more fee-based business. Reps are paid 75 percent of the first-year fees for any fee-based business that they write. The bank is obviously giving up some revenue initially, but such sacrifices are deemed necessary if the program is to build a sustainable, long-term business.

'Touring' the program

In an effort to further integrate the brokerage program into the bank, Price has been inviting the bank's most-senior executives to take a two-hour "tour" of the investment services unit. (See cover photo.) "Many hadn't been there since the Compulife days" in the 1990s, he notes.

What exactly is shown on the 'tour'? It begins with an overview presentation by Price in which he outlines the program—where it was, where it is today, and where they intend to move it in the future. He reviews the program's financials and also its organizational structure.

Two years back, 70 percent of sales were coming from bank referrals. Today, 30 percent of the investments business comes from bank referrals.

Next, the bank executives meet with the investment executives (brokers), usually for 20-30 minutes, where they discuss things like new products and technologies. This is followed by a meeting with the program's operations manager, whose tenure at National Penn spans both the Penn Securities and Compulife periods, and who is able to make comparisons with those earlier programs.

Finally, the senior bankers meet with an associate broker (junior broker). This last meeting is one way to illustrate the 'depth' of the program—to demonstrate that they have a 'bench' with fully licensed associate brokers who can ably serve customers if and when the need arises—for instance, if a senior broker is not physically present at the branch.

Is there anything on the 'tour' that particularly impresses the executives? Many were surprised that 75 percent of the staff had been with the company for less than two years. They were also struck at the amount of energy in the operations center, says Price. "I wish I could bottle it and take it with me," commented one executive. The executives, too, were impressed with the amount of net profits generated by the unit over the past 24 months, Price adds.

The tour ends with the senior bank manager receiving a gift—a motivational book. National Penn's CEO will be taking the tour in January.

As noted, Price has been working in financial services for more than 20 years. From IDS in the 1980s, he moved to working as a portfolio manager at a trust company, but found that he didn't like being stuck behind a desk and soon opted to get back to sales. Next stop was First Union (now Wachovia) for four years in the trust/asset management sales area, followed by stints at two regional banks in Pennsylvania. After completing his two-and-a-half year tour with the Department of Homeland Security in 2005, National Penn "asked me to sell for them" in their retail brokerage program, recalls Price. Six weeks later, the bank's program director departed, and Price was asked to take his place.

Developing new revenue streams

Price is continually scouring for new ideas, trying to grow the number of revenue streams. His brokers, for example, aren't restricted to working out of bank branches. He has attached several 'wirehouse-type' brokers to commercial lending officers, for instance. These brokers often interact well with business owners (i.e., commercial banking clients), who often like to discuss individual stocks and bonds. The typical retail branch customer, by contrast, is often drawn to packaged products like mutual funds and annuities.

In hiring sales reps, Price says he'll often take a chance on 'folks with the right "culture" and a good work ethic.'

They've also developed a variation on the senior-broker/junior-broker program. Price calls this his "senior/senior" program. It came about because one of Price's high-producing reps couldn't quite get to all the business that his 'book' was throwing off. Instead of hiring a junior broker to work with him—the more typical route—Price hired another senior broker. Why? That senior broker "wanted to come on board right away"—to join National Penn from another firm. Price accommodated him.

He is regularly searching for brokers that are looking to make a change from other companies and sees his role as marrying "the right investment executive to the right mission." It's useful to tell reps what they can do—but also what they can't do. Every rep would like to have 100 branches or $100 million in bank assets and lots of referrals, but it's not going to happen, says Price. Once he makes that clear to them, they will often find a way to do more with less.

Asked about the investment program's leading product suppliers, Price declined to name names, stating only that they had 24 product providers who also support the program with seminars and attendance at quarterly sales meetings, among other things.

Reps are paid 75 percent of the first-year fees for any fee-based business that they write. The bank is giving up some revenue initially, but some sacrifices are deemed necessary if the program is to build a sustainable, long-term business.

The National Penn/KNBT Bancorp merger is expected to be complete in early February 2008. What then? "It's undefined right now," said Price in early December. KNBT has grown its investments program a different way, he notes, and both programs will report to Donald Worthington, executive vice president for the Wealth Management group, who will have overall responsibility for the wealth, trust, and investment management areas for the combined company. KNBT recently gave up its broker/dealer and is now working with PrimeVest.

Recent acquisitions will give National Penn about $8 billion in assets under management or administration. In fact, the number of fee-based revenue streams at recently acquired institutions—Keystone Nazareth Bank and Trust (KNBT), as well as Christiana Bank and Trust, a Delaware bank—was one of the things that made them attractive merger candidates in the first place, said Cathy Bower, a company spokesperson.

Finding the right people

What is the most difficult thing about running a bank brokerage program? Finding good people, answers Price. He looks for individuals who are committed to success, who will accept coaching, and who are looking for a team environment—at least to the degree permitted within an individual 'sport,' like sales. "They have to treat their partners the right way"—both their internal partners (e.g., traditional bankers) as well as clients. Courtesy, politeness, and professionalism are required.

Each candidate is individually interviewed by Price, as well as a human resources manager, and the program's CFO. "More often than not, the right candidates jump off the page," says Price.

The whole interview process is often completed in less than three weeks. Price likes to move fast when it comes to recruiting. He's taken calls from prospects at home at 8:30 in the evening.

Along these lines, someone once said to him, "Rick, you play the general and the sergeant quite well." That is because, as Price explains, he feels intensely responsible to the people he hires.