Management and Supervision Strategies for Bank Platform Investment Programs

By Bruce Stava
President:  LicensedBanker.com

With the explosive growth in the past few years of platform investment programs, banks and their broker/dealer subsidiaries have grappled with various strategies for sales management and supervision of the of the investment activities of licensed bank employees.  Platform programs fall under 2 general categories: insurance-licensed bankers who are able to sell fixed annuities and some life insurance products, and insurance- and-NASD-licensed bankers who can also sell variable life products and mutual funds.  The technical aspect of supervising these reps differs due to NASD licensing requirements, however the philosophical component of the strategies overlap.  At the core of the debate is the question of whether the traditional management/supervisory structure used to manage the company’s “dedicated” Financial Consultants is the best and most appropriate way to manage licensed bank employees who only spend part of their time engaged in investment sales.  In this article I will summarize the 3 primary models of platform program management, including benefits and disadvantages of each, and hopefully will provide some guidance to banks who entering the platform investment arena.

The first model I will address is the insurance-only program, which is an extremely common way for banks to enter the platform investment business.  It is interesting that a number of bank programs began as insurance only, and have since begun to transition to NASD-licensed, as they have become more comfortable with the platform strategy.  Since these insurance-licensed bankers do not require NASD-licensed supervisors, it is a much simpler task to design management/supervisory strategies that are both effective and cost-efficient.  A common model is to have a Program Manager who reports to the Broker/Dealer, but is also “dotted-lined” to Bank Management.  At the local or Regional level, bank sales support officers can have annuity/insurance sales responsibility as well as their normal deposit/credit sales.  Their role is to interact with both regional and branch management, as well as to coordinate sales and product training for the licensed bankers.  Supervisory and Compliance functions are provided by the broker/dealer, who generally assigns a dedicated staff to interact with the platform team.  The overlying philosophy of this strategy is that “bankers know bankers”, and can provide the most culturally-attuned and effective management of the platform reps.  A number of programs assign some sort of partnership, or “mentor” role to the branch Financial Consultant, with mixed results.  In many cases this is perceived as only a superficial role, designed to “keep the brokers happy”, and in fact historically a case can be made to support this somewhat cynical view.  The reality is that oftentimes a good financial consultant is not trained or “wired” to be a good manager or mentor, and forcing this role upon them is not always fair or effective for either party!  For this strategy to be effective, resources must be dedicated to providing the FCs with appropriate training.

The second model to consider is an insurance and NASD-licensed program.  Most such programs have opted to utilize a Series 6 license, which allows the platform rep to sell mutual funds and variable annuity and life insurance products, as well as traditional fixed annuities.  In some more sophisticated platform programs, management has decided to utilize a Series 7 license, which also allows the licensed banker to sell general securities such as stocks and bonds, however in such programs the primary goal is to allow greater referral/compensation interaction between licensed banker and financial consultant.  NASD-licensed platform programs have the potential to be much more effective in serving the bank’s customers, as well as more profitable for the bank, however they are much more complex in their management requirements.  A simple explanation is that because of the structure of fixed life insurance products, in the case of rep error or justified customer complaint, the trade can usually be “unwound” with no great financial impact to the firm.  However securities are “marked to market” daily, and errors/complaints can result in large expenses to the firm.  In addition, particularly in our litigious environment, great care must be exercised to ensure that licensed bankers are trained and supervised properly is customer profiling, product knowledge, appropriate disclosures and operations knowledge.  This greater complexity results in the need for a more complex management system for NASD-licensed platform programs, which also makes these programs more expensive to the parent bank. 

The first model of managing an NASD-licensed platform program involves adding the licensed bankers to the existing reporting chain of the bank’s broker/dealer.  In effect, this gives the existing B/D management team responsible for the dedicated financial consultants the added responsibility for the licensed bankers.  In the short run this can be a more cost-effective model, and is usually popular with the B/D’s management, who are able to maintain control over the securities sales of the licensed bankers.  However this model can also lead to problems.  In the first case, adding a large number to licensed bankers to a local sales manager’s team can dilute the “span of control”, which refers to the appropriate number of salespeople that one manager can effectively supervise.  This number is not set in stone by the regulators, and varies from program to program, however the addition of a large number of new LBs can set off alarms.  A second, more intangible but very important problem can be the inability of the B/D’s management team to effectively communicate to and manage a large number of “part-time securities sales people”, which defines the role of the licensed banker.  The average LB has a complex job, and must juggle a number of duties in addition to securities sales, unlike the traditional dedicated financial consultant.  Even routine issues such as scheduling sales meetings can be difficult with a large group of LBs.  In addition, the fact that LBs are direct reports to their branch managers as well as to their securities sales manager can lead to conflicts, often based on cultural differences between commission-based financial consultants and branch banking.  For this management model to work requires an exemplary state of cooperation between senior bank and B/D management, and even then it can prove difficult.

 The second model of managing an NASD-licensed program involves the creation of a new management team, dedicated only to the licensed bankers.  This team is somewhat of a hybrid, with direct reporting to the B/D for securities related activities, and to bank management as well for strategic and tactical issues.  This model is becoming more and more popular, in spite of its incremental expense to the parent company, due to its ability to focus exclusively upon growing the platform channel.  Platform sales managers hold the appropriate supervisory licenses however they are often much more closely attuned to retail banking activities than the traditional B/D management team.  Oftentimes platform sales managers can be recruited internally, based upon previous sales and management experience.  These managers often are better able to focus on the types of introductory training that licensed bankers require, and to work more effectively within the constraints of normal branch employee activities, working closely with branch management.  It is important that platform sales management share some common goals with their peers on the financial consultant side of the business, just as senior management goals must coincide as much as possible.  The issue of “span of control” also arises with platform sales managers, and again there is no hard and fast rule.  Unfortunately in this type of situation, it is a problem that is usually identified after serious issues have arisen!  A common strategy is to align platform sales managers with retail bank organization, usually with one manager assigned to a particular bank “region” of branches, and reporting to both bank and B/D senior managers.  When using this model, back office functions such as Compliance and Operations are shared by both management teams.

 Conclusion:  As platform investment programs continue grow in both size and complexity, there is not a single “best way” to effectively manage them.  The one criteria that remains constant for a successful program is the absolute necessity for a shared commitment to the program’s success by senior management of both bank and B/D.  That being said, as the popularity of NASD-licensed programs continues, creating a new management team dedicated to the platform channel seems to show the greatest promise in producing a world class (and profitable!) program.

 Bruce Stava is the President of LicensedBanker.com, the first website dedicated exclusively to providing Jobs, Tools and Resources to Platform Investment Representatives and Management.  Bruce can be contacted directly at (562) 438-5591, or by email at  bruce@licensedbanker.com.