Bank advisers move up to 'second story,' forego referrals

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For many bank advisers, it's a near nirvana-like situation: working their books of business without having to deal with branch traffic.

Their dream may be closer than they imagined. Banks increasingly are experimenting with the relatively new idea of graduating their most successful branch-based advisers to "second-story" status.

As second-story advisers, they can focus on their books and deepen relationships with existing clients without the burden of helping the branches with training and sales development. They're sometimes relocated to a corporate office or simply moved "upstairs" from the ground floor of a branch.

"It allows them to work that book and no longer have to contend with whoever walks through the door at the branch," said Steven Saltzman, a principal and owner of Saltzman Associates.

Advisers who get bumped up to second story no longer receive branch referrals and give up their lower-tier clients to other advisers, concessions that they're willing to make in exchange for the benefit of working their books uninterrupted, according to bank wealth executives.

Slower branch traffic
As traffic at bank branches slows and the number of branches dwindle, banks have more reason to offer their advisers alternative work models that aren't branch-centric. Advisers can no longer rely on branch traffic to the same extent they did in the past and need to work the books they have, said Saltzman.

Banks may also see this as a way to retain experienced advisers, say industry observers. It allows tenured advisers "to focus on things they do best instead of spending time with every casual branch client," Saltzman said.

Second-story advisers aren't new. J.P. Morgan Chase and a handful of other large banks, including SunTrust, Key Bank and BBVA, employ second-story advisers, but they're known by other names. At J.P. Morgan Chase, they're called independent advisers, according to Rick Rummage, founder and CEO of the Rummage Group.

J.P. Morgan Chase's second-story advisers operate as "wirehouse advisers within the bank," he said, explaining that they do not cover any branches and receive no direct referrals from the bank.
Not just at the big banks anymore
While second-story advisers are primarily found at large banks, many smaller institutions are now beginning to adopt second-story adviser programs too. Old National Bank of Indiana, for example, has one second-story adviser and plans to have five to eight more in the next couple of years, according to Erik Pinter, a sales manager at Old National Bank.

The bank decided to give their top branch-based advisers the opportunity to become second-story advisers because "they didn't have time for the branch," Pinter said. The bank will "only go down that road" with top advisers or those whose "books are big enough that they can support themselves without any new leads," he said.

Most advisers jumped on the opportunity though some had reservations about giving up referrals and "missing out the next big lead," Pinter said. They were also reluctant to give up their D clients because they could potentially turn into big clients down the road.

Overall, they were very comfortable with their decision, realizing that although they might miss out "on a big one," they wouldn't have to "deal with a lot of the little ones," Pinter said.

Webster Bank is another bank that started a second-story adviser program. It recently transitioned its top 10 producers to the new role following a client segmentation process in which they offloaded one-third of their clients to other financial consultants.

The 10 candidates had large books of business or an "entrepreneurial bent," said John Olerio, director of Webster Investments. They were adept at generating referrals from existing clients and their centers of influence and being ambassadors for Webster Bank in the community.

The skeptics
Not everyone was aware of second-story advisers or thought they were a good idea. Many industry observers were skeptical of their long-term viability, saying that not having branch referrals would be hard for advisers to accept.

"To turn the spigot off completely doesn't make sense to me," said Paul Werlin, president of Human Capital Resources, a training and consulting services firm.

Other skeptics cited the natural attrition that occurs in advisers' books, noting that clients die or move to other states. "That's a recipe for disaster if you just sit back on your existing clients. There's always churn in the industry," said Wayne Cutler, an executive vice president at analytics and advisory firm Novantas.

Rummage also sneered at the model, saying that it's not competitive with wirehouses. If advisers are not receiving referrals, they may start to question why they're there when they could get a better platform and higher payout elsewhere.

"That is not a model that works," he said.

Skeptics doubted that advisers would assume full responsibility for replacing their business. "That might be the case, but boy, they better be getting a higher payout. There better be some other benefit for it," said Werlin.

At Old National, second-story advisers get a slightly higher payout for forgoing branch leads, according to Pinter. They also have sales, operational, compliance, and all the other support that goes with being part of the bank.

Becoming a second-story adviser is "a good step up" and something that all advisers should aspire to, Pinter said. "We want them to be successful enough that they can take their business and have it humming along without the added help of leads coming from the branch," he said.

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Practice management Career moves John Olerio Erik Pinter Webster Bank JPMorgan Chase SunTrust KeyCorp Key Private Bank BBVA Old National Bank