Cover Story - Spring 2008 | By Andrew Singer

JOHN D. VAUGHAN, JR. remembers when BB&T's retail brokerage program had 30 dedicated Series 7 reps. Today it has 280. Back in 1995, North Carolina-based BB&T Corporation reported $5.75 million in income from mutual funds and annuities. Last year it reported $71.61 million.1

His 17 years in the business have given Vaughan some perspective. The competitive landscape is more challenging. Finding a good bank broker is "harder and harder to do." Today, BB&T's brokers are hired from a range of places—Merrill Lynch, Edward Jones, and other bank brokerages; "It's varied—not one particular program," says Vaughan, who runs BB&T Investment Services, the brokerage unit.

Two sets of clients

What Vaughan likes to emphasize, however, is that a bank broker's job still differs in a fundamental way from that of other brokers.

As he tells his reps, "To be a good bank broker, you have two sets of clients: internal and external." The internal clients are the bank's employees and managers—at all levels. They must be cultivated if they are going to refer clients. "If you don't do a good job with your internal clients, you will not see your external clients," Vaughan tells his investment counselors.

Retail investments chief John Vaughan has four rules for cultivating bank brokers' internal clientele.

The hunt for brokers is getting very competitive among banks, notes Vaughan, particularly for those reps with the skill to work both internally and externally. Indeed, some banks have been pushing Ii>too hard—beyond the edge of propriety, in his view—when it comes to recruiting other program's reps. But that's a story for another day.

A bank broker who might be assigned to work in five bank branch offices has to figure out from day one how to earn the respect of his/her internal clients—everyone from the teller in the drive-through window to the relationship managers, to the branch manager, to the "person who cleans the office in the off hours," says Vaughan. He encourages his reps to "roll up their sleeves" and "get into the trenches." They should not only get to know the branch employees, but even something about their spouses, 'significant others,' and pets, if need be.

Banks are all too familiar with the other kind of broker—the type who "think they're better" than the people who work in branches. That sort of broker just doesn't fit well within the bank's culture, notes Vaughan, who is also current president of the Bank Insurance & Securities Association (BISA).

'If you don't do a good job with your internal clients, you will not see your external clients,' says Vaughan.

They talk about matters like these 'cultural issues' during the initial interview p rocess, especially with brokers coming from non-bank environments. The watchword is "no surprises," says Vaughan. "We tell them the good, the bad, and the ugly" right from the beginning.

This isn't to say that wirehouse brokers can't succeed in a bank. Many do. Often these are salespeople that have been undone by the wirehouses' emphasis on cold calling. In banks, by contrast, they are often working with "warm leads" provided by branch bankers. A bank offers a supportive environment for the sort of broker who wants to take a consultative sales approach. Sales are usually conducted face to face, not over the telephone as at wirehouses.

Vaughan sometimes speaks with 10-15 new employees in a single month. With all of them, he emphasizes that "earning the respect of the internal client is hugely important."

Cultivating the 'internal client'

Imagine Suzy, the financial center manager, says Vaughan. "Suzy's got 100 people pulling at her coat tail every month." Each wants something from her. "How do you differentiate yourself from the other 99 people?"

There are four key ways that bank reps can distinguish themselves with their internal constituents, suggests Vaughan. These can be expressed as rules.

Rule number one is: "No excuses." When someone on Vaughan's team makes a mistake, they're encouraged to raise their hand immediately. Instead of offering 25 reasons why the mistake was made, the rep is encouraged to pronounce something along the lines of, "Suzy, I made a mistake. I will be back to you by 3:00 p.m. today with a resolution [and] what we will do about it. At the very least, I will call you by 3:00 with an update on where things stand."

Vaughan's second rule is: "Do what you say you are going to do." The rep must really call Suzy at 3:00 p.m.

The third rule: Abide by the Golden Rule. That is, treat others as you would want to be treated yourself.

The fourth rule: "You can't say 'please' and 'thank you' enough."

This last rule is particularly relevant when it comes to referrals. If the financial center manager has a retail investments prospect, she can call an 800 number at BB&T. In about 30 seconds, she can book an appointment for that client with an investment counselor—10:00 a.m. the next morning, say. (Technology is a big help here, Vaughan notes.)

The next morning, the investment counselor shows up at the branch at 10:00 a.m. sharp. He conducts the client meeting and then "blows right out."

That's wrong.

"Whatever you do, don't do that," Vaughan tells his reps. Don't appear at 10:00 a.m. Show up five minutes early and go to Suzy's office. "Thank Suzy for the appointment with Mr. and Mrs. Jones." Don't breeze right out after the appointment, either. "Thank her again, and tell her how the appointment went." (Again, you can't say 'please' and 'thank you' enough.)

Abiding by these rules builds respect, confidence, and trust. A rep can't just visit Suzy's office and say, "Feed me, feed me, feed me." Nor is that consistent with BB&T's culture. Better to visit Suzy and say, "Educate me in your goals," whether they be meeting home equity loan targets, attaining branch-deposit goals, or some other metric.

Cross-referrals are tracked daily at BB&T. If an investment counselor meets Mr. and Mrs. Jones at noon and sells them a mutual fund, she may also let Suzy in the branch know that the Jones are remodeling their home and might be interested in a home equity loan.

As is often said, the best way to get a referral is to give a referral.

No platform program

BB&T Investment Services does not have a platform program. Why not? Vaughan believes that full-time professionals should sell investments. Indeed, he views it as an "affront" to dedicated professionals to suggest that one could outfit a CSR (customer service representative) with a Series 6 license and say, "In your spare time, sell investment products."

"It requires a full-time, dedicated student of the business," asserts Vaughan, with knowledge not only of his or her own products, but also those of competitors. He notes that more and more banks are looking to exit platform programs these days.

The average production of licensed platform bankers continues to fall, he observes. The January 2008 monthly average was $898, according to the Kehrer-AXA Distributors Monthly Bank Investment Services Monitor. At that rate, it isn't worth the regulatory risk, suggests Vaughan.

That said, the bank experimented with a platform program three or four years ago, licensing 10-15 platform bankers in one of its geographic regions. "It just didn't work." They disbanded it after six months.

Selling packaged products

Today, about 90 percent of the program's sales volume is in packaged products—mutual funds, and fixed and variable annuities. Retail bank clients usually are not greatly interested in individual equities or playing the stock market, notes Vaughan. In this, BB&T's program is like many other retail bank investment programs. The bank does have a discount brokerage operation for people who want to trade.

BB&T has four client segments: 1) core (mass market), 2) top core, 3) private financial services ($250,000 to $1 million in investable assets), and 4) wealth management (more than $1 million in investable assets).

"We work with both wealth management and the private advisors," says Vaughan. All his investment counselors have advisory licenses (i.e., Series 65/66 licenses).

In its wealth management segment, BB&T favors a 'trusted advisor' model in which a single relationship manager, a generalist, acts as gatekeeper and conducts a customer profile. This relationship manager determines if and when to call in a specialist, whether it be for insurance, investments, lending, or mortgage assistance.

There are no 'silly rules.' That is, a broker doesn't have to hand over a client to trust or wealth management at a certain threshold (e.g., $1 million in investable assets).

Such rules, in Vaughan's view, lead to absurdities. Say a broker conducts a financial profile for a client. He finds a gold mine of investable assets, much more than he suspected were there. But what does he do now? "How do you say, 'I'm not smart enough to deal with you?'" asks Vaughan.

At BB&T, brokers establish rapport with affluent clients, and it doesn't bother the private banker if a broker meets with Mr. and Mrs. Jones, makes an investment sale, and then introduces the couple to the private banking unit for other financial needs, says Vaughan.

When brokers do sell to wealth management or mass-affluent clients, about half of their sales are typically in fee-based products—as opposed to the packaged products that dominate in the retail sphere. Brokers often attend joint meetings with private bankers.

In the bank's core areas, Vaughan's brokers are averaging $40,000 per month in revenues.

Packaged products like mutual funds and annuities are gaining more traction these days at the wealth management level, too. Even wirehouse brokers are looking for products with guaranteed income to replace (vanishing) defined benefit pension plans. There's more attention being paid to funding retirement, and that's what variable annuities can do, notes Vaughan.

First-quarter revenues rose 14-15 percent

What about the program's production? Program numbers on a year-to-year basis don't mean terribly much to Vaughan. BB&T has done many acquisitions in recent years, and that skews things when it comes to comparing annual production numbers. Some new areas are just coming up to speed with regard to investment sales.

That said, in their core areas—North Carolina, for instance—brokers are averaging $40,000 per month in revenues. In Florida, which is relatively new to the program, production is considerably lower.

BB&T Corporation's acquisitions have been large and small. They purchased One Valley Bancorp (West Virginia) and First Virginia Banks, Inc.—fairly large bank companies; but they've also acquired many small community banks that have been through three or four TPMs (third-party marketing firms). Sometimes those programs were losing money when they came into the BB&T fold. The only thing to do was to dismiss all the reps and start over.

The bank experimented with a platform program three or four years ago, licensing 10—15 platform bankers in one of its regions. 'It just didn't work,' says Vaughan.

That said, Vaughan's first-quarter 2008 revenues were up 14-15 percent compared with the first quarter of 2007. Some of their acquisitions are beginning to pay dividends, apparently.

Vaughan's has 11 regional sales managers. Each is expected to meet with every one of the 20-plus members on his or her team each month, one on one. This is monitored via their electronic call-report system.

The electronic system matters. It's important for Vaughan as a manager to see "what we actually have today"—that is, which appointments are scheduled, how many people are on vacation, what is the current production by investment counselor, production by region, and so on.

Importance of consistency

What are the keys to a successful program? One critical thing is consistency, Vaughan answers. That means not changing the rules every week—whether it is changing a rep's sales territory or modifying the compensation schedule.

It also means doing the right thing for the client. Paperwork is required for every sale at the bank. Documents must be signed in multiple places, and all paperwork has to be complete. They don't take shortcuts with clients. It also means introducing the client to the appropriate specialist who can meet their needs.

Vaughan has spent 33 years in banking. He began in corporate banking, working in the business development area for Southern National Bank, a North Carolina institution. Later, he headed that bank's retail investments program. When Southern National merged with BB&T in 1995 (a 'merger of equals'), he took over the combined retail brokerage unit.

That seems a long time ago. The combined entity had $18.5 billion in balance sheet assets. Today, BB&T Corporation has $133 billion in assets and nearly 1,500 bank branches. It has almost 10 times more investment counselors than it had in 1995.

Even though BB&T's headquarters has since moved from Wilson to Winston-Salem, North Carolina, the brokerage unit is based in Charlotte. Why? That's where Vaughan was living when asked to take over Southern National's brokerage unit nearly two decades ago, and that is where it has remained ever since.

Now that's consistency.

1 Based on analysis of FDIC call report data and Federal Reserve Board Y-9 data by the Bank Insurance Market Research Group (Mamaroneck, NY). The reporting field is "income from the sale and servicing of mutual funds and annuities."

Andrew Singer is editor-in-chief and publisher of Bank Insurance & Securities Marketing magazine. He can be reached as