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Financial Planning > Behavioral Finance

The Exodus Continues

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Companies are leaving the financial supermarket concept behind

By Jack Bobo

When the late Walter Wriston was CEO of Citibank, he was a champion of the concept of “Financial Supermarkets.”

In his famous “String Bag” speech, he analogized the transformation of the former shopping habits of the British housewife with the emerging change (as he saw it) in the behavior of people seeking financial products. He pointed out that in former times, the British housewife would leave home with her string bag and visit a butcher shop, where she purchased meat for the family. Then she would go to a local bakery to buy bread and goodies. With her string bag not yet full, she would visit a local grocer to complete her shopping for the familys meals for the next several days.

That was the way it was yesterday, according to Wriston. Today the housewife goes to a supermarket where she obtains all the necessary supplies in a single visit. He then reasoned that it was ridiculous for a person to have to visit many locations to purchase a variety of financial products. And thus, the idea of a financial supermarket was born.

The concept of a financial supermarket also was used to persuade Congress to repeal laws that acted as firewalls between banking and other financial services. The reasoning put forth at the time: Financial supermarkets (just like regular supermarkets) are in the public interest and it isnt practical to wall off the meat department from the bakery or grocery department. Everything needs to be available at a single location and with one cashier.

Congress bought the idea and promptly did the bidding of the banks by repealing laws perceived to be impeding the development of such supermarkets. And so the rush to be on the cutting edge of financial services began.

The late Bob Beck persuaded the board of Prudential to purchase Bache in order to better position the company to ride this new wave of the future.

Not to be outdone, Sears was the first organization actually to open such a supermarket by putting all its financial products and services in a single location. The prototypes opened with great fanfare and the wave continued to roll.

In 1983, American Express acquired a financial advisory group from Allegheny Corp. and joined the parade marching to the financial supermarket. As an American Express cardholder, I can attest to the fact that this concept was marketed aggressively over the years. I and other cardholders were given ample opportunity to partake of American Express financial advice and use of their products.

These were the leaders of this movement. There were and are others, of course, but it was these four companies that started the movement. And so, 25 years later, it is only fair to ask, how did it go?

Sears never really got beyond the prototype phase. The few supermarkets they opened closed a short time later, this time with no fanfare. Some opined at the time that Sears really didnt have the kind of customer base that lent itself to sophisticated financial supermarket planning and so that this was not a valid test of the financial supermarket concept.

From all indications and from numerous outside reports, Prudential never did successfully digest Bache and assimilate it into either its corporate culture or profit structure.

According to the Feb. 2 issue of The Wall Street Journal, the latest player to throw in the towel is American Express. The report states that the financial advisory business lagged well behind the companys other businesses. It also quoted Sheryl Garrett, founder of Garrett Planning Network, as saying: “By segregating the financial services division, it helps remove the perception that youll be cross-sold, which consumers do not want.”

Whether you believe that or not, it is a critical aspect of this issue, for cross-selling is the whole basis upon which the supermarket idea was built. It is also worth noting that when American Express announced it was going to spin off its financial advisory unit, its stock rose 6%.

Even before the American Express move, Citigroup announced it was selling its Travelers life insurance and annuity unit to MetLife. Citigroup, which grew from Walter Wristons Citibank, will, of course, still have other financial products to cross-sell, but without life insurance, the foundation of most financial plans, it will no longer be a supermarket.

The overriding consensus of these four leaders, who are now marching to a different drummer, is that they wish to concentrate on their core products and services. Or, as the old bromide goes, “tis best to stick to your own knitting.”

Reproduced from National Underwriter Edition, February 25, 2005. Copyright 2005 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.


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