Investors ran for cover during last year's fourth quarter, dampening the productivity of broker/dealers selling investment products through banks.

Bank broker/dealers averaged $19,737 a month in gross commissions on sales of financial products during the fourth quarter, a decline of 17 percent from the previous quarter and a 27 percent drop from the fourth quarter of 1999, according to Ken Kehrer Associates, an independent consulting firm in Princeton, N.J.

The fourth quarter represented the first time monthly commissions for broker/dealers sank below $20,000 since the first quarter of 1996, according to a report by the firm. The December average, $17,638, was the lowest since December 1997.

"Brokers working in banks had been improving every year so it's been a real setback to go back to 96," said Ken Kehrer, president of Ken Kehrer Associates.

Fourth quarter productivity levels represented a major setback in a year that began on a bullish note. After establishing a record-setting monthly average gross of $31,209 during the first quarter of the year, broker/dealers saw their monthly take decline for eight of the remaining nine months of the year, the firm found.

"It's been a real roller coaster for the broker/dealers," Kehrer said.

Licensed branch bankers selling financial products saw their gross commission revenue sink too. Their monthly gross for the fourth quarter was $1,418, down 24 percent from the previous quarter and 17 percent from the last quarter of 1999. Commissions from mutual fund sales in banks, a staple for broker/dealers in recent times, withered last year and for the first time since the 1980s, broker/dealers earned more from fixed annuity sales than from mutual fund sales, the report said.

"Revenues dropped for all products but for annuities, it dropped just a tad," said Kehrer. "Annuities have become a safe harbor in the face of market volatility."

They have also become a favorite of licensed branch bankers.

"Many banks have trained their bankers to sell fixed annuities because many brokers don't like to sell them," Kehrer said. "To the brokers, annuities aren't an investment. Investments have to do with the stock market."

The mix of financial products sold through banks is moving away from mutual funds and toward annuities and individual stocks and bonds, the report said.

Mutual fund sales accounted for 26 percent of broker/dealer revenues in the fourth quarter, a dip from 29 percent in the previous quarter and from more than 30 percent in the first two quarters of the year. The share of broker/dealer revenue attributed to variable annuities also slipped during the period. They accounted for 20 percent of broker/dealer revenue compared with 23 percent in both the third and fourth quarters. That represented a seven percent drop from the last quarter of 1999.

But the revenue share from fixed annuities increased slightly during the period, from 24 percent in the previous quarter to 27 percent in the last. Their contribution to broker/dealer revenues has been on the rise for seven of the past nine quarters. Seven quarters ago, in the second quarter of 1999, fixed annuity revenues accounted for only 18 percent of broker/dealers' revenues.

Although investors began shunning mutual funds sold through banks in the fourth quarter, they have not written off equity investing, according to the report. Broker/dealer revenues from general securities transactions rose to 11 percent during the fourth quarter from nine percent in the previous quarter and nine percent in the fourth quarter of 1999. In the past, volatile market conditions have driven bank investors away from all equity investing, the report said.

"But the latest market setback has had a quite different impact on investors who invest where they bank: they are shifting away from mutual funds toward individual securities trading," the report said. "This behavior seems to mirror the trends in the broader securities market."

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