Many bankers say selling annuities to depositors is shooting yourself in the foot. Sure, you get a one-time fee, they say, but then the money leaves the bank forever.
That is why I have long contended that though cross-selling second and third services is a good way to cement customer relationships, banks should not push annuities.
Michael D. White a bank and insurance consultant in Radnor, Pa., thinks Im wrong. When I last expressed this view in print he responded:
Empirical facts bear out the soundness of banks cross-selling annuities. From 1990 to 2000, banks and thrifts have been the fastest-growing annuity channel in the country, selling $186 billion and producing an estimated $11.2 billion in gross revenue. Virtually every study indicates that hybrid annuity sales programs involving both licensed bank employees and dedicated investment representatives are the most productive.
Disintermediation is a false concern, he added. Of the 150 banks in his database that sell annuities and have at least $2 billion of deposits, only 10 registered a decline in deposits in 2000 and four of those declines were of less than 2%.
Mr. Whites point is this: The sale of an annuity often leads to additional contributions or additional sales later. Annuities constitute a relationship, not a one-night stand, he said.
So why do some banks do so poorly in selling annuities, even when they want to? I posed this question to Michelle Gula, the marketing manager of BNK Advisory Group in Northampton, Pa.
Ms. Gula explains that some banks offer sophisticated investment and insurance products about which employees cannot answer basic questions.
To prove her point, Ms. Gula said she went into a community bank in her area and opened a new account mainly to assess how the staff would cross-sell their investment products. I opened up a basic checking account and asked about their savings options, she said. The representative was very pleasant and informative about their savings accounts and money market accounts but never mentioned their most recent promotion on a mutual fund. When I asked about this option she stated that she does not handle those accounts and I would have to talk to someone else.
She then continued on with her paperwork for my new checking account. She never did introduce me to someone who could help me with mutual funds. Nor did she give me the persons card or a brochure or any other information on this product to take home.
Situations like these, Ms. Gula concludes, perpetuate the belief that community banks are no place for more sophisticated products and services. It sends the message that the bank is neither knowledgeable nor overly concerned about the nontraditional products it offers.
Her suggestion to bankers: Every initiative that you think about doing should be strictly assessed to see if you can support the demands it will put on your resources. You may have the best product on the block, but if your sales force cannot sell it, you may as well stick to checking.
Anyway, Im still not real high on banks selling annuities. If you are thinking about doing so at your bank, survey your customers first to sense whether it would lead to a drain on deposits.
Mr. Nadler, an American Banker contributing editor, is professor of finance at Rutgers University Graduate School of Management.
