After years of fighting the ebb tide of deposits, bank investment product operations now face a different enemy: complacency.

It comes as no surprise with the bulls in retreat that individual-investor money that once poured into equities is now pouring back into traditional banking accounts.

But banks must be prepared to handle the reverse flow when the market turns around, said Lou Harvey, the president of the Boston financial services research firm Dalbar Inc.

"This is no time to step back from the investment business," Mr. Harvey said.

At the height of the bull market, individual investors grew confident of their ability to manage their money independently. Independent brokerage houses - particularly discount shops - swept up most of the business.

The current market has sparked interest in conservative investments.

• By Sept. 30, in the most recent Federal Deposit Insurance Corp. tally, commercial bank deposits were up 7% from a year earlier and 12% from two years earlier.

• Since Sept. 11 "we have clearly seen an increase in the pace of deposit inflows," said Keith Leggett, senior economist for the American Bankers Association in Washington. "Investors probably put that money into money markets or maybe even into basic checking accounts or something that was FDIC-insured."

• "Insurance applications are up dramatically, and fixed annuities constitute three out of every four [annuity] sales," said Michael White, the chairman and chief executive officer of the Michael White Associates consulting firm in Radnor, Pa.

All in all, banks "are not missing out on the downswing," Mr. White observed.

Mr. Harvey also pointed out that consumers have a lot of liquid assets that have never been in the equity markets. "The people reluctant to invest over the last couple of years have tons of cash" - about $5 trillion - he said.

Bankers hope they can now capture more wallet share by promoting themselves as the purveyors of confidence and safety.

They are still using branches to make referrals to their brokerage houses, but in some cases it also works the other way. Joel Calvo, executive vice president of WM Financial Services, the investment arm of Seattle's Washington Mutual Inc., said that this year each of his financial consultants will be required to make five referrals a month to branch bankers - for mortgages, loans, deposits, or some other traditional banking product.

"Clients are becoming more rational," said Stan Gregor, senior vice president and director of investments for Quick & Reilly in New York, the brokerage arm of FleetBoston Financial Corp. "They say, 'I don't have the experience to follow the market; I need to deal with a professional who can offer me experience,' and a great deal of money has left the equities markets and landed in bank balance sheets."

Fleet's fixed-annuity sales were running at record highs in December and were expected to total $2 billion for the year, up 53% from 2000, Mr. Gregor said. Fleet has also seen "great demand for insurance products and services," including life and long-term-care insurance, he said.

Banc of America Investment Services Inc. in Charlotte, N.C., has also seen "a lot of interest in safe, fixed-rate investments," said Keith Winn, its national sales manager. "The majority of annuity sales have been fixed annuities," though there has been some renewed interest in variable annuities. (See related story on next page.)

Meanwhile bank investment reps are trying to position themselves as sources of sound investment advice during hard times while dispelling the idea that banks are merely transaction-oriented.

Fleet's Mr. Gregor said banks must keep investors interested in the equity markets and the full range of investment products they offer.

The B of A unit is definitely adopting "a holistic, financial-planning point of view," Mr. Winn said. "The depth of the relationships is proportional to the amount of trust that exists, and the planning process sets the stage for that trust."

Mr. Calvo of WM Financial Services agreed. "One of the things we like to do is to talk with customers about their investment needs," he said. Many WM prospects are often "confused by what is happening in the stock market and do not recognize the value of diversification," Mr. Calvo said. "There might be a fear factor about investing in the market now."

"The key thing," said Dennis Mooradian, the chief executive officer of Wells Fargo Investments, which manages about $130 billion, "is being out there with an objective story that gives people a good, logical reason to be invested."

After Sept. 11, said Mr. Mooradian, who is also the president of Wells Fargo Private Client Services, Wells mailed marketing information to its parent's 1.2 million customers saying that it was a good time to be invested long-term in the market.

Wells also mailed a list of its top 10 stock picks for the next 12 to 14 months. "We believe the environment will be positive for investing" in that period, Mr. Mooradian said.

In addition to doing more marketing, banks have headed upmarket - toward those most likely to have money to invest in a down economy.

"It's no longer all comers," said Dalbar's Mr. Harvey. "This is most notable in the investment companies that will not sell directly [to consumers] anymore. If you move down the food chain, you have the larger institutions, like the Merrill Lynches of the world, deemphasizing the small-account business because it is not profitable."

David Furlonger, a vice president and research director for Gartner Inc. in Stamford, Conn., said financial institutions are trying to understand where the margin is within the segment they are going after and "how they can either retain or acquire clients in the wealthy or middle echelons."

"There is more disposable income spread around," Mr. Furlonger said. "Firms need to go upstream of their existing clients - to those who may not know they have other methods of deposit than a deposit account as well as those who are more sophisticated and require a broader array of products than just mutual funds."

Banc of America Investment Services has recently shifted to this strategy. "In our part of the company we have targeted the affluent and superaffluent" - households with about $250,000 to $5 million of investable assets - Mr. Winn said.

To attract the wealthy and ultrawealthy, banks have also introduced alternative investment products. Wells, for instance, rolled out two hedge funds in the fourth quarter for its very rich clients, and Mr. Mooradian said it has been holding client seminars in six cities around the country to explain the funds. (See related story on page 14.)

Similarly, Washington Mutual and Fleet have recently come out with wrap products that assign professional money managers to high-value accounts in which assets are invested in individual stocks rather than mutual funds.

Banks have also been beefing up their investment sales forces.

• Fleet, for example, replaced 230 of its 800 series 6 sales force with series 7 brokers in 2001. (Investment reps with a series 6 license can sell only mutual funds and a limited range of insurance products. Series 7 licenseholders can sell a wider range of investment products, including stock.)

• Wells said that it plans to add 350 trust officers by the end of 2002, and that since September it has added 80 private bankers and portfolio managers.

• Banc of America Securities has made "a concerted effort" to attract experienced talent from the securities industry" and is training 100 of its 2,500 series 6 brokers to become series 7, Mr. Winn said.

For the past two years banking companies have also been changing way they compensate brokers and other salespeople. Instead of getting a per-transaction commission, they are now generally paid on the basis of the assets in an account and how long the customer maintains one.

"It's an incentive plan that rewards the financial consultant for developing the relationship," said Fleet's Mr. Gregor. "As the customer assets grow, so will the compensation for the representatives."

Still, some observers say banks should be doing even more to turn their depositors into investment product customers. Otherwise, they say, the net inflow of deposits could turn into a net outflow when the markets improve, as happened during the late, lamented bull market.

But Wells' Mr. Mooradian expressed confidence. Hiring "competent and skilled professionals" has given his operation "the ability to penetrate the customer base Wells Fargo [Bank] makes available to us," he said.

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