Union Bank of California enjoyed a steep increase in brokerage revenue last year as a result of referrals to its financial advisers from a beefed-up corps of licensed bankers.
"Our referrals went up dramatically, as well as our referral income," said Steven Short, the chief executive of UnionBank Investment Services in Los Angeles. "We've got some real momentum."
Referral income in 2010 was $4.5 million, up from $1.5 million the previous year, according to Short. Referrals have been increasing in number from month to month, and 2010 ended with more than 3,400, he said.
Short said he expects referral revenue in 2011 to total "at least $6 million."
Union Bank is in the midst of an initiative to energize and enlarge its force of licensed bankers. A year ago the bank had 100 licensed bankers; thanks to a training and licensing push, it boosted that number to 263 by the end of 2010.
Last spring, Short discussed plans to increase the total of licensed bankers to 325 within three years. Union Bank was able to quickly train and license 160 bankers, in 10 classes, because the retail bank freed them from their duties for the requisite three- to five-week blocks of training outside the bank, he said.
Union Bank is a unit of UnionBanCal Corp., which is based in San Francisco; UnionBanCal is a subsidiary of Mitsubishi UFJ Financial Group Inc.
Seeing untapped referral potential, Union Bank in 2009 hired two leaders to oversee its licensed banker program: Casi Dileva, licensed banker and life insurance program manager, and Jerry Mladenik, licensed banker manager on the retail side. The training and licensing push grows from that cooperation, Short explained.
"The strong partnership between the broker-dealer and the retail bank is what separates us," he said.
Union Bank's success is something other banks should pay attention to, especially at a time when fees are under regulatory pressure, said Michael White, president of research at the consulting firm Michael White Associates in Radnor, Pa.
For many banks, fee income has, or will, suffer from new limits on charges on deposit accounts, White noted. Against that backdrop, attempting to improve referrals to brokerage can be a sensible thing to do, he said.
"This is obviously a straightforward way to offset those declines," White said. "Even if they didn't have those declines, it's a good way to increase income."
The pickup in referrals helped Union Bank's brokerage and insurance businesses to have a mostly successful record through at least September of 2010. According to White Associates, the parent banking company's insurance brokerage fee income in the first three quarters of 2010 — the most recent data available — rose 49% from the same period in 2009. Securities fee income was up 14%. Annuity commissions were down 5%, according to White Associates.
Union Bank's licensed bankers aren't allowed to sell investments and insurance directly to customers; their job — aside from their banking responsibilities — is to make referrals to dedicated financial advisers.
Using licensed bankers as a referral engine is a big financial commitment, between the up-front training and licensing and the required continuing education. But it opens the way for referral incentives that can be more effective, White said.
"One advantage is that you can reward [the referring bankers] more liberally than just providing them a nominal referral fee," he said.
In fact, making a significant investment in licensed bankers can work as a motivator for their supervisors and senior management to make sure that referral goals don't get pushed to the back burner, White said.
Union Bank carefully selects trainees for the licensing program based on their aptitude and enthusiasm for the investment and insurance referral role, Short said. The bank wants its retail licensed bankers to have series 6 and 63 licenses as well as insurance licenses.
Series 6 licensees can sell packaged investment products such as mutual funds; series 63 licensees can sell securities. Thus far, trainees have passed their exams at a rate approaching 90%, Short said.
Union Bank is not concerned that poaching of its newly licensed bankers will be an issue, Short said. So far turnover has been the same among licensed and nonlicensed bankers, he said.
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