Banks are increasing their business with existing customers, but investment management firms are doing a better job of attracting and retaining customers, according to research scheduled for release Monday from the Chicago consulting firm A.T. Kearney Inc.
Ameriprise Financial Inc. of Minneapolis is the financial institution most capable of growing organically, according to A.T. Kearney's research. Last year before it spun off Ameriprise, American Express Co. scored highest.
The No. 2 spot in the second annual Organic Growth Index went to Edward D. Jones & Co. LP of St. Louis, which was not on the index last year.
A.G. Edwards & Sons Inc. of St. Louis fell one spot, to No. 3. Vanguard Group Inc. of Valley Forge, Pa., rose 16 spots, to No. 4. Charles Schwab Corp. of San Francisco fell one spot, to No. 5, while Merrill Lynch & Co. Inc. rose 13 spots, to No. 6.
The index looks at what A.T. Kearney calls "customer momentum" - the ability to attract and retain customers - and "wallet momentum" - the ability to increase business with existing customers - to measure 33 financial institutions' ability to grow organically.
Richard Hartnack, the head of consumer banking at U.S. Bancorp, said it does not surprise him that investment management firms topped this year's index.
"It is probably partly a story of relative improvement in skills and abilities in marketing a broader set of products to a broader audience," he said in an interview last week.
His company rose 10 spots this year, to No. 18.
The highest scorers among banking companies were Comerica Inc. of Detroit, which rose 14 spots, to No. 7, and Wachovia Corp. of Charlotte which fell five spots, to No. 8.
The bottom spot on this year's index went to Compass Bancshares Inc. of Birmingham, Ala., which was No. 22 last year. M&T Bank Corp. of Buffalo fell 8 spots, to No. 32. Rounding out the bottom five: Royal Bank of Scotland Group PLC's Charter One Bank, which fell 23 spots, to No. 31; Sovereign Bancorp Inc. of Philadelphia, which rose one spot, to No. 30; and Chevy Chase Bank of Bethesda, Md., which fell 18 spots, to No. 29.
"I don't view this as the one and only beauty pageant," Joseph P. Campanelli, Sovereign's vice chairman and the head of its specialty lending business, said in an interview last week. "We see lots of positive signs in the marketplace that we are doing the right thing."
Reorganizing the company 18 months ago around markets rather than business lines has helped with cross-selling, a key ingredient of organic growth, Mr. Campanelli said.
"We wanted to be in the business of developing relationships with households and business enterprises, and not just selling checking accounts or gathering deposits. The success we are having in cross-selling shows our strategies are paying off," he said.
Andrew Green, the A.T. Kearney vice president who led the development of the index, said that this year companies generally made modest gains in customer retention and acquisition and showed significant headway cross-selling and increasing business with customers. The average customer momentum score rose 1%, and the average wallet momentum score jumped 12%.
Investment management firms scored low on attracting and retaining customers in last year's survey, but this year they "surged on the customer momentum dimension," Mr. Green said. "For retail banks, that is a wake-up call."
Mr. Hartnack and others said that investment management firms tend to have more skilled front-line employees than banks, and that those employees are doing a better job solidifying relations with new and old customers.
"Investment management firms are clearly a very significant competitive threat and player in the overall landscape. You cannot be a retail bank today and simply consider retail banks as your competitive threat," Mr. Green said in an interview last week.
This year's index is based on surveys of more than 4,800 people in February and March in the nation's 20 largest cities.
"What jumps out at me" when looking at the top-ranked companies "is the efforts that each of these firms has made on relationships," Christopher V. Dodds, chief financial officer of Schwab, said last week.
Schwab, like Merrill and some other brokerage firms, is trying to expand and solidify relationships with brokerage customers through banking. Last year it cross-trained brokerage employees so they could talk to customers about Charles Schwab Bank home loans and deposit accounts.
Next month it will eliminate a collection of "nuisance fees" attached to banking services. It will also begin to consider not only Schwab brokerage account assets and trades, but also balances in Schwab bank accounts and on bank loans, in determining eligibility for brokerage account perks, such as lower commissions.
Mr. Green said investment firms "have a real leg up" on banks, because they tend to cross-sell better and attract more assets from customers. "This is a really hard issue for banks to wrestle with and break the code for. They still tend to be organized in silo fashion around the products."
There are indications that bankers are moving to level the playing field.
Carrie L. Tolstedt, head of the regional banking group at Wells Fargo & Co., said Tuesday at an investor conference that in recent years her San Francisco company has added 1,200 bankers with series 7 broker licenses "who are better equipped to talk to the customers about their investment needs."
Series 7 licenses let brokers sell more sophisticated investment products than the series 6 license, which is used by many banks and allow employees to sell only annuities and mutual funds.
Wells rose two spots in this year's index, to No. 15.
Though Sovereign is near the bottom of the list, Mr. Campanelli said it is moving in the right direction and will continue to make progress by "recruiting the right skill sets, training the people for the right behaviors, improving the experience if people want to do more business" with the company.
M&T said the results do not reflect the company's overall performance.
"We don't think the sample is representative of our customer base, because the majority of our retail operations are situated outside of the areas that were surveyed," C. Michael Zabel, a spokesman for M&T, wrote in an e-mail last week.
A spokeswoman for Charter One's immediate parent, Citizens Financial Group Inc. of Providence, R.I., wrote in an e-mail last week, "We have serious questions about the validity of this survey." Citizens surveys customers monthly, and since July of last year, "we have seen a consistent upward trend in our customer service scores."
Chevy Chase Bank did not respond to requests to comment, and a Compass spokesman would not discuss the index.
