When small banks look at independent planners, they see dollar signs.

Small community banks around the country are increasingly teaming up with independent broker-dealers and advisors to ramp up revenue and compete with wirehouses.

"I want [advice] to be as big a part of our business as the mortgage business, and I think it can be in five to 10 years," says Mike Edwards, president of Paragon Bank, which runs four offices in Memphis and one in Atlanta and has $300 million in assets. The employee-owned bank launched a wealth management division in November through a partnership with four veteran LPL-affiliated advisors. 

They are former Raymond James & Associates advisors Staci Jackson, Charles Hardee and Kent Brooks Monypeny, as well as Mark Winburne, who used to work for FirstBank Investment Partners and Morgan Stanley.

A pair of national LPL-affiliated firms – one of which drove the Paragon deal -- have merged to foster similar alliances. Once small- and mid-sized banks add planning services, they won’t be forced to refer clients to local wirehouses or other competitors, says William Hamm, founder and CEO of Independent Financial Partners.


"We are bringing the hybrid platform to the bank channel, which is relatively new," Hamm says. "It is kind of an off-the-balance-sheet, non-interest, fee-income machine. There is no capital outlay on the part of the bank."

Independent Financial Partners, a national network of 500 advisors with $5 billion in assets under management, merged this month with a smaller network, Private Wealth Alliance. The latter has 40 advisors in regional and community banks and credit unions serving about 5,000 clients with more than $500 million in AUM. The merger formed IFP Institutional Services, which is jointly owned by Independent Financial and Private Wealth, which did the Paragon deal. The new firm will continue to operate under the Private Wealth brand.

Many IFP advisors come from wirehouses, while Private Wealth's advisors already work out of institutions ranging in size from $200 million to $21 billion in assets, say Hamm and Dan Overbey, managing director of Private Wealth Alliance and IFP Institutional.

By building teams of independent advisors, many smaller banks are looking for an equity cash out down the line for their founders.

"Say you have a $500 million bank that should throw off about a half-million dollars in wealth management fees," Hamm says. "If the bank gets $150,00 of that, the nice thing is, it goes directly to the bottom line. At a multiple of 10 [applied to the bank's bottom line revenues], they have created a million-dollar-[plus] valuation by creating this service.”


Faced with increased regulatory pressures, community banks like Paragon can't afford to build a wealth management offering from scratch, Hamm says.

The new merger gives Private Wealth's advisors access to IFP's greater resources. In exchange, IFP advisors will have access to Private Wealth's bank relationships.

Paragon's four LPL-affiliated advisors work out of the bank’s office space, but are not bank employees, Edwards says.

Private Wealth handles all the regulatory and compliance issues related to the advisors' client work. Each of the advisors had been operating independently for years on their own, Overbey says. All four are both registered representatives and investment adviser representatives, according to their regulatory filings.

The bank currently is negotiating with a fifth advisor in Atlanta, who may not work out of one of the bank's offices, Edwards says.

More than 80% of the revenues the advisors generate, Edwards says, come from fees.

For the privilege of working out of the bank, they pay a small portion of the income they receive off their entire book of pre-existing business to Paragon, and a larger split of the income they receive from clients referred to them by the bank, Edwards says.

Only a handful of the bank's 3,000 customers now use the advisors, Edwards says, but he envisions that number growing to 10% or more.

By farming out this line of business to a third-party, Paragon also avoids liability, Edwards says.

The advisors "are selling non-FDIC-insured products," he says. The task of making "sure they are not selling a fixed annuity to a 90-year-old or putting all of someone's assets into one stock" does not fall to the bank, he adds.


Nationwide, there are less than five banks in the country that have more 500 financial advisors on their payrolls, says Overbey, who is also listed as president of Paragon Wealth Solutions on the bank's website.

"What we are doing with IFP is we are giving that 10-person or 15-person shop the same scale, same tools, same access that a 500-person shop would have," Overbey says. "That's huge. It's an out-of-the-box concept."

"If IFP were a bank program, it would be one of the top 10 programs in the country" in term of advisor-count, he adds. "All of a sudden, [small banks] are able to compete with Morgan Stanley.

"We think there is significant opportunity there," Hamm says, "and expect to be very successful with it."

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