With large and midsize banks choosing to build their own investment services units, Raymond James Financial Services has targeted community banks to expand distribution of its investment products nationwide.

Since Jan. 1 the St. Petersburg, Fla., asset manager has established 24 sites in community banks. Early this month, it announced five sites at four community banks — Rushville, Ill.’s Union Bank; Mount Airy, Md.’s Farmers and Mechanics Bank; Cary, N.C.’s Capital Bank Investment Services Inc.; and Channelview, Tex.’s Woodforest National Bank, which has two.

These arrangements give the firm 253 partnerships with banks that have $250 million to $2 billion of assets. The partnerships put Raymond James’ programs — including financial planning, investment products, insurance and annuity services, portfolio management, trust and estate planning, and retirement consulting — at 416 community bank sites in 42 states.

James Fulp, president of Raymond James’ institutions division, said the firm began "romancing" banks and financial services institutions to expand distribution in 1987. Through the late 1980s and early 1990s, Raymond James steadily expanded its relationships, but the real growth has occurred in the past five years, when it shifted its attention to community banks.

"This channel is an excellent fit in our organization," Fulp said. "We want to work with the smaller bank and build a financial services unit. We want to be the service provider. This is a great growth opportunity because these banks are providing basic levels of service. Their customers are seeking more sophistication."

The partner banks hire their own investment representatives, and Raymond James trains them to sell its proprietary products.

Fulp said the key to growing this way is to "provide quality services and get out of the way." He said it is crucial to let the bank have total control in structuring its program and hiring financial advisers.

"The bank is the control party of this relationship," Fulp said. "We are a step beyond. We want to serve as a vendor. This is crucial in a financial institution. If the bank doesn’t select its own staff, you run the risk of creating a personality mismatch and setting the stage for failure."

Through the community banking channel, Fulp said, Raymond James has accumulated $7 billion of assets under management, 11% of its revenue stream. Fulp said much of these assets have been accumulated in the past five years while the firm opened 310 sites in 244 community banks.

Fulp said the reason Raymond James began aggressively pursuing smaller banks was that in recent years most larger and midsize banks began consolidating or launching their own investment platforms. To remain competitive, he said, Raymond James needed to find a relatively untapped channel; smaller banks, meanwhile, needed to offer financial services to stay competitive.

"The prospective investment customer is more savvy and better informed today," he said. "When they come in to see a financial adviser, they expect a full-service brokerage firm. … With us, small banks can offer wealth management programs; they can compete with anyone."

Burton Greenwald, a Philadelphia financial analyst, said community banks offer a lot of opportunities for companies like Raymond James to expand distribution. "Independent firms will be fiercely competing for space through this channel," he said. "They are running out of room with the bigger banks who are making their own products these days. They have to move aggressively here."

Fulp said Raymond James has its eye on more relationships, for example, with Desert Community Bank in Victorville, Calif.

"These banks are successful. They still have that hometown touch," he said. "They have strong relationships with their customers. When a customer wants to expand into investment, maybe they won’t go to the brokerage firm across town. Maybe they will stay with their community bank because it is where they have always gone for their financial services."

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