From the July 2003 issue of Investment Advisor • Subscribe!

July 1, 2003

Banking On New Revenue

A virtual bank launches a program that provides re

Who says banks and independent advisors can't get along? Try this on for size: Everbank, the nationwide branchless division of Jack-sonville, Florida-based First Alliance Bank, recently launched a program for advisors that allows them to compete against banks and wirehouses on banking products and mortgages.

Broker/dealers who sign a joint marketing agreement with Everbank can offer the Everbank Advisor Program to their affiliated advisors. Since the program's launch in April, 30 broker/dealer firms have signed up, says Robert Foregger, Everbank's COO. And 10% of the B/D firms' 5,000 reps, he says, have already joined the program.

Why would a bank, and a virtual one at that, develop such a program? The answer is simple, says Foregger: Everbank gets to distribute its products through a nationwide channel of advisors, while advisors gain access to products their competitors offer, and earn extra cash. Since starting up in 2000, "Everbank always saw the independent financial advisor market as a potentially intelligent component of our business, and an attractive distribution channel because we thought they were underserved," Foregger says. "Everbank is a branchless bank, so for us to be able to serve advisors across the country is very easy because that's what we already do" for customers.

Everbank initially launched the first iteration of the Everbank Advisor Banking Program in partnership with American Skandia in the first quarter of 2002, according to Foregger. However, American Skandia discontinued the advisor banking program in April 2002 after putting itself up for sale. Prudential Financial acquired Skandia in December 2002, with the deal being consummated last month. "In essence, Skandia discontinued new business development as it cleaned itself up for sale, and our great new banking program was a casualty," Foregger says.

Everbank originally used Skandia to sign firms for the advisor program, Foregger says. "Today, Everbank goes directly to each firm to sign agreements and build relationships," he says. After Skandia's sale, "Everbank spent the next nine-plus months completely overhauling the program structure to allow Everbank to market and directly support the needs of B/Ds and advisors."

Michael Arcaro, a Prudential spokesman, says American Skandia broke off its efforts with Everbank to market banking products through B/Ds after deciding to focus on its core businesses: mutual funds and annuities. "Banking regulatory hurdles" were also a factor in Skandia's decision, he says.

These days, "coopetition," where financial services firms compete with each other while also leveraging each other's strengths, is becoming standard practice. Foregger says advisors are embracing Everbank's program because of two trends: the convergence of financial services firms, as well as the trend toward financial planning and away from pure investment management. Today, advisors can't be without banking services, he says. The wirehouses are adding banking services left and right; first it was Merrill Lynch, joined most recently by the launch of Charles Schwab Bank. "One of the most exciting and interesting stories in financial services has been Merrill Lynch's premeditated move of moving its clients' money market mutual fund assets into FDIC insured bank accounts," Foregger says. "Today [Merrill] has $65 billion in FDIC bank deposit accounts."

Michael Lytle, principal of Canfield-Ohio based Lytle & Co., which is affiliated with Questar Capital Corp., says banking services are something his firm had to have. It's an important component of a client's complete financial picture, he says, "and a lot of clients are looking for the FDIC insurance." Banks are offering investing and financial planning services, he says, so why shouldn't advisors offer banking products? "From my office, I look out at four different banks, and I live in a pretty conservative area; [banking is] something that I absolutely had to have for my practice." Lytle adds, "the name of the game is gathering assets, and Everbank gives us a terrific avenue to do that."

Banks to Brokers

Independent advisors are also running up against more and more banks that are morphing into brokers. One recent example is Wachovia Securities Financial Network merging its retail brokerage force with that of Prudential Financial. The merger makes "Wachovia the third-largest broker network in the nation," Foregger says. "As a financial advisor, do you want to refer your business to Wachovia for a mortgage or an FDIC-insured banking product?" he asks. "The obvious answer is no."

And independent advisors just can't ignore the fact that banks are becoming "more sophisticated players in the financial advisor space," Foregger says. "Some are growing a few hundred percent as far as the broker workforce that's now in a bank holding company."

Larry Paul, president of PLR Financial Partners in Rockville, Maryland, which is affiliated with H. Beck, Inc., thinks Everbank's program is manna from heaven. With Everbank's program, "I've got something that can put me on an even playing field with the banks," he says. Clients would be hard pressed to find better interest rates than what Everbank is offering on its money market accounts (1.75%) and on its checking accounts (1.3%), he says.

Alan Kepfer, president of Aspen Financial Management, Inc. in Taos, New Mexico, couldn't agree more. He says Everbank's stellar interest rates are especially great for his retired clients who have large sums in CDs or cash reserves. Everbank provides "them [with] higher interest than what they can get at their local bank," Kepfer says. "Right now, with low interest rates, whatever we can do to help them make a little extra interest, we're going to do it."

Michael Lytle says Everbank beats all four banks in his front yard on checking and CD rates, as well as on business checking accounts and mortgages.

Everbank provides trailers for referring banking products. For instance, for referring clients to the bank's FDIC insured money market accounts, checking accounts, and bill pay service, advisors get 25 basis points. For Everbank's FDIC-insured World Currency Product, which allows an advisor to put clients into the euro or Swiss francs or Australian dollars, the average trailer is 50 basis points. Everbank is also getting set to launch the Market Safe CD, which is an equity-linked certificate of deposit allowing clients to buy into the S&P 500 or another index with guaranteed principal protection. The product will have an upfront commission charge, Foregger says, which has yet to be determined. Everbank also offers clients an opt-in strategy. "If a client opts in for information sharing, it allows the advisor to see a quarterly report of the client's position in our bank products."

Getting Started

To get up and running in the banking program, advisors must first log on to the Everbank Pro Web site and pass a training course. Advisor must go through a brief online test that confirms they understand the key components of the banking program from a compliance standpoint, as well as the enrollment process for their clients.

To be part of Everbank's mortgage program, advisors must go through additional training and become an on-call employee of Everbank, specifically for the purpose of originating mortgages, Foregger says. "The advisor is not an employee for any other services other than for originating mortgages," he adds. Advisors can receive 25 to 40 basis points on closed loan amounts, depending on the size of the loan. Everbank's parent company, First Alliance Bank, has $2 billion in total assets, and $25 billion in mortgage servicing assets.

Larry Papike, president of Cross-Search, a broker/dealer recruiting firm in San Diego, California, says Everbank's mortgage program is a godsend for advisors. With brokers' securities business "really hurting," he says, they're desperately searching for alternative revenue sources, particularly mortgages. Papike says he receives daily calls from advisors asking him to find them a "broker/dealer that will let [them] do mortgages." The program allows the B/D to perform due diligence on Everbank's mortgage system. Typically, B/Ds allow brokers to dabble in mortgages "as an outside business activity," Papike says. "My concern has always been that the customer [could] sue the broker and the B/D," even if the B/D had "nothing to do" with causing whatever problem cropped up. With Everbank's program, "the B/Ds are in charge of what firms they are using and can monitor the activity," he says. "When you [allow brokers to do mortgages] as an outside business activity, I think the B/D is really exposed." Offering a program like Everbank's is also a great way for B/Ds to recruit new reps, he says.

But should advisors be concerned about Everbank's comparative youth and virtual status? Planner Paul doesn't think so. "What's the concern?" he asks. "The bank is FDIC insured up to $100,000. That's my security blanket." Besides, he says, "a lot of the clients I'm talking with have money in mutual fund money markets where there are no bricks-and-mortar [branches], no place to cash a check, no ATM access." An initial concern for clients might be that the bank is only accessible online and through the mail, he says, but Everbank will reimburse users $6 a month for ATM charges incurred in using other banks' ATMs. Planner Lytle says he's been directing all his clients to Everbank's Web site, www.everbankpro.com, to look at the bank's CD and mortgages rates, "and they're impressed."

Foregger says Everbank is "sensitive" to the fact that referring clients to the bank is "not going to be the center of the advisor's business." But planner Lytle, for one, says he'll "be recommending Everbank's services to every client," and telling the 17 reps that he oversees to do the same.

If you're an advisor that's looking for additional sources of revenue, and your broker/dealer hasn't signed up with Everbank yet, now might be a good time to tell your B/D to take a look.

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