Community banks have been crowing that more customers have been steadily streaming in the doors since large banks’ financial crises left the mega-institutions weakened and less competitive – including the wealth management arena.

To date, success over the big players has mostly come through traditional banking avenues – deposits and loans. But community banks say they are seeing a popular lucrative niche in financial advising and related insurance products in which to press their customer service advantages, and the time to act is now.

The clock is ticking on current low interest rates, and that has many banks stepping up their search for more fee income before rates increase and earnings get squeezed.

“People are feeling disenfranchised by the larger institutions,” said Julie Livingston, CEO of Marblehead Savings Bank. “They’re feeling that they don’t have their needs in play anymore, and they keep getting redirected away from personal contact to 1-800 numbers.”

In their frustration, Livingston’s theory goes, they’ll be more interested in a smaller, more personal institution where they can be sure to get a human on the phone. That, in part, is why Marblehead Savings and other Massachusetts banks sought the go-ahead to add insurance to their offerings, often as a means of beefing up their financial advising services.

Old Idea, New Life

Financial advising is not a new idea in community banking; some Massachusetts community banks have well-established wealth management arms. Marblehead Savings has had financial services offerings since 2005, but recently decided to ramp up its operations, getting the Division of Banks’ approval to sell insurance.

A steady stream of banks and credit unions have been requesting to sell insurance over the past few years, with four getting approved at the end of 2009, six in 2008, and a steady trickle before that, according to the records from the Division of Banks.

Most, including Priority Credit Union in East Boston, are sticking with simple life and disability insurance. Others are using it to complement a larger spread of financial advising services and products.

The idea is to offer a one-stop shop for all a customers’ finances, with checking accounts and annuities under the same roof, said Julieanne Thurlow, president and CEO of Reading Cooperative Bank.

Reading Co-op got its insurance approval in late 2008, and began operations in the first quarter of 2009. Thurlow said the bank needed to increase its offerings beyond traditional banking products, particularly in the current rate environment.

“It’s difficult to sell someone a savings account with less than 1 percent interest,” she said.

The rate environment plays into banks’ need to find steady sources of income in other ways. While banks are on a perennial hunt for new sources of income, the pressure is particularly strong this year.

A New Environment

While rates were low last year, many banks loaded their portfolios with fixed-rate, low-cost mortgages. When interest rates rise, as they are likely to do, banks’ large piles of fresh deposits will price upward, meaning banks will be squeezed between a long-term loan that isn’t paying much, and a pile of deposits that suddenly got more expensive.

In an environment like that, Thurlow said, it’s important to brainstorm other avenues.

This is why banks fought for the legal right to sell insurance – either directly or by purchasing an agency – in the first place. Bankers believed it would be a golden opportunity to cross-sell new products and reap a windfall in dependable income. For a bank selling a mortgage, for example, it seemed like a sensible business strategy to try to sell homeowners insurance at the same time.

More than a decade after receiving approval to sell or refer insurance products, most insurance and banking experts say it’s been a hit-or-miss business proposition. Many banks have turned a nice profit, while others, like Citigroup or Connecticut-based Webster Bank, got out of the business only a few years after entering.

Lately, local banks seem to have eschewed tackling the traditional property/casualty business, focusing instead on life insurance as a ticket into offering full-service financial advising, often by hiring an independent or in-house advisor.

Reading has partnered with Bay State Financial Services, a Boston-based financial services business. Reading’s foray into the new territory has gone well in its first few quarters, Thurlow said, driven by those discontented former customers of major investment houses.