Full-Service Finance

Financial institutions are expanding upon their traditional offering to provide a surprisingly wide range of financial services.

October, 2000

Whole life, term, lump sums, rollovers, 401(k)s, IRAs. The road to financial well-being is laden with numerous routes and difficult choices. So in an effort to simplify the dizzying process, financial institutions are providing a wider range of financial services. Which might explain why insurance companies are selling securities and annuities, and banks and brokerage firms are offering insurance to their clientele.

“Customers want full-service financial planning,” says First Hawaiian Insurance Senior. Vice President Michael G. Taylor. “They don’t want to go to five or six different places, they want one-stop shopping.”

Prior to 1996, state laws prohibited local banks from selling insurance. Banking regulations changed slightly that year, allowing specialized subsidiaries to provide insurance. However, it wasn’t until June of this year that banks were officially allowed to sell insurance in 25 percent of their existing branches. That number will increase to 50 percent June 1, 2001, and to a full 100 percent in June 1, 2002.

One-stop shop:First Hawaiian Insurance’s Micheal G. Taylor with some of the bank’s offerings.

Bank of Hawaii and First Hawaiian Bank have both taken advantage of the new laws. They’ve staffed 19 of their 76 branches, and 14 of their 58 branches, respectively, with licensed insurance professionals. Both intend to extend the service as the law allows.

But will financial institutions be spreading their services thin?

“Not at all,” says Taylor. “The bankers aren’t selling insurance…qualified insurance agents are.”

Formerly, the Life Insurance Professional Association fought to keep the banks out of the insurance market as brokerages and financial institutions began to tread on their turf. “One of the concerns that we had was that the banks would use indirect pressure—approval of loans for example—to conduct business,” says Gary Kimata, regional director for Manulife Financial. “As it turns out, we have not seen any of our initial concerns bear fruit. In fact, the banks are probably my biggest producers in terms of insurance sales.”

Nationally, insurance sales and money market mutual funds aren’t big revenue generators for the typical bank. But that may change soon.

“Last year we made over $1.5 million in commission,” says Taylor. “This year we’re on schedule for $2 million.” Bank of Hawaii Senior Vice President Curtis Chinn adds that sales of insurance have been sizeable and significant at his bank, but more importantly, the service provides a real value for his customers.

“There are real efficiencies in being able to provide a variety of services across the board,” says Paul Loo, senior vice president of Morgan Stanley Dean Witter. “Insurance sales make up only 5 to 7 percent of Dean Witter’s $35 million in gross revenue, but we consider it to be one of the bedrock’s of financial planning.” According to a study by the Consumer Bankers Association, consumer investment programs offered by the banks are also heating up. Bankers nationwide are handling more “tickets” (investment transactions) every year, averaging 900 in 1999, up 18 percent from 764 in 1998. “By our count, 21 of the 27 largest retail banks are now selling investments through licensed bankers,” the study notes.

Whether it be banks offering mutual funds or brokerage firms selling life insurance, what it boils down to is satisfying clients with the three C’s: Convenience, Comfort, and Customer Service.

And that seems to be the overall consensus. “It’s very confusing for customers to have their money all over the place,” says Taylor. “There are customers who would prefer to buy their insurance at a bank. Why? Because that’s financial.”

Bank of Hawaii’s Chinn agrees. “It’s a real win for the consumer,” he says. “Telecommunication rates have gotten incredibly cheap due to an extremely competitive marketplace. I think that’ll happen in financial services as well.”

That should keep everyone laughing all the way to the bank.

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Jacy L. Youn