THOMAS R. VENABLES
‘Personal touch’
The fine line between investment services and banking products is blurring, and brokers say the continuing trend will eventually make banks obsolete – but Bay State bankers are faithfully defending their territory.
That defense is made necessary by a variety of turf encroachments from non-bank financial services providers. Financial Services giant Merrill Lynch, for instance, recently launched a new service that includes checking and savings account options, an area currently dominated by traditional banks.
“With this new service, a client doesn’t need a bank anymore,” said Merril Pyes, Boston district director of Merrill Lynch on the company’s new product, “Beyond Banking.”
“Beyond Banking” is a new cash management service designed to work independently or alongside other Merrill Lynch services, giving the client a one-stop shop from which to manage all the varied assets and accounts.
The product offers the typical features of a checking and savings account, including ATM access, Web bill payment and a variety of short-term investment products. Clients also have access to mortgage, credit and lending products together with the advice and guidance of a skilled Merrill Lynch financial advisor, said Pyes.
“It almost sounds like – why didn’t someone come out with this before?,” questioned Pyes, who spent more than 23 years in financial analysis, corporate finance and wealth management before taking on the management of approximately 200 employees in the wealth management and private wealth groups at Merrill Lynch. “We’ve traditionally been looked at as an investment house … This gives us the environment to help our clients look at the wide aspect of financial needs.”
Pyes said customers nowadays want simplification and one point of contact – even on the short term – and are moving away from banks in an effort to consolidate their deposits under one roof.
“People want choice and that is what we are trying to give them,” said Pyes. “It’s more cost-effective and a better use of their time and money.”
But officials at more traditional Bay State banks are conceding that point.
“Imitation is the sincerest form of flattery,” said Thomas R. Venables, president and chief executive officer of Benjamin Franklin Savings Bank. “When you think about it, what [investment service companies] are doing is the ultimate compliment to a bank … They are saying ‘our business model alone isn’t cutting it, so let’s become a bank.'”
Venables points out that banking services offered in investment companies are coming at a time “when the banking industry has just come off one of its most tremendous years.” Investment companies have argued that traditional banks are not meeting the full scope of client demand and are, therefore, losing deposits. Venables, however, said that the strong performance of banks in 2002 disproves that claim.
Merrill Lynch historically has offered money market accounts of various types and, according to Pyes, the Merrill Lynch cash management account “really revolutionized the industry” because it allowed a client to access an account at all times.
But according to bankers, traditional banking will never go out of style.
“You may have a good broker, but [their product] is ‘banking’ on the fact that you’re going to do your banking remotely,” said Venables. “And there is a lot of merit to that model, but there is a huge percentage of the population that wants the service of traditional banking” and the ability to interact personally with those providing the service.
As big-house brokerage firms introduce banking products, banks are joining the fray by offering investment services, further eroding the fine line that once delineated the roles of traditional banks and investment services firms.
“The distinct components are definitely getting blurred,” said Venables. “In the days of Regulation Q, savings banks and commercial banks were totally different animals and today … A bank is a bank is a bank, but we all have a charter that is very similar … The next step is between brokerage and banking. I don’t think it’s a bad thing, but I think [banks] can compete on a different level – the personal touch factor.”
While the introduction of and numerous amendments to the Gramm-Leach-Bliley Financial Modernization Act lowered the firewalls between banking and investment services, officials in both fields say the increased competition is healthy.
“This is a direct result of Gramm-Leach-Bliley and the industry isn’t concerned about the competition, but [banks] need to be able to have the same ability and same arsenal of products and services as many of the non-banks have,” said Daniel J. Forte, president and chief executive officer of the Massachusetts Bankers Association. “If a consumer were a good bank shopper, you could get all these products for minimal fees at a bank. Our work going forward is to be competitive and keep up with the market as it evolves.”
According to Pyes, having a financial advisor attached to banking services is a key element of Merrill’s strategy. Increasingly, Merrill Lynch clients want advice on how to manage their short-term cash flow in addition to long-term investments, he said.
“Clients are more fee-sensitive than ever. Anytime we can increase their returns, especially on their cash, it’s a big plus,” said Pyes.
‘Evolving Landscape’
Banks view that trend as an opportunity, as well, as they begin to introduce brokerage services in their branches.
“Banks have been around for years and were created to protect deposits, but at the same time, we’ve recognized the fact that people want more,” said Wayne Texeira, vice president of marketing at East Boston Savings Bank. “Banks have established levels of trust to go with their customer base – they want to go somewhere they can trust. People rely on their financial institutions and if you’re dealing with a large investment firm vs. a community bank … that is where we argue the fine-line differences [are].”
Texeira said the trend of merging services has been evolving over the years but the one thing for consumers to keep in mind is how the industry is regulated.
Investment professionals agree that the banking industry has always been very heavily regulated and, according to Texeira, the Federal Deposit Insurance Corp. is very clear on what services are insured.
“Being FDIC-insured is where the concern lies with regulators … and is the consumer clear that the product is insured with the FDIC,” said Texeira, who oversees Benjamin Franklin Savings Bank’s investment services offerings available through third-party relationships. “Gramm-Leach-Bliley gave additional powers to banks and investment services, but it did blur the line. To be competitive, everyone is looking for new sources of income. It’s the nature of where things have changed.”
Forte said that as non-banks become more involved with traditional banking products, those companies will be forced to identify their banking products from an FDIC-insured standpoint, but it is the banks that will have to maintain the competitive advantage.
“This is part of the evolving landscape of financial services and banking is just looking to compete and offer products to compete with on a level playing field,” said Forte. “We just need to maintain changes in our production line and technology to be ahead of the game.”
While Forte argued that quality of service from a local bank is irreplaceable, Pyes said it is all about convenience for customers these days.
“The key lynchpin is the one-stop shopping and having all of your financial services handled in one place and having the financial advisor to help you,” said Pyes, who acknowledged that Merrill Lynch’s banking customers make up a more affluent-consumer market “so those are the clients we will attract with this product.”
But at local banks in Massachusetts, bankers said this type of competition is all part of the territory – and the game is easily played on both sides.
“Banks are offering brokerage services in return, too,” said Venables. “It’s not a mainstay of our business … but the bottom line is that the competition in the financial services industry, of all sorts, is good for the consumer.”
