NEW YORK -- Federated Investors Inc. has introduced two individual retirement account (IRA) plans for banks to sell to the taxpaying public.
The two plans, one featuring mutual funds and the other with mutual funds and a discount brokerage service, comprise what the Pittsburgh-based firm calls its "Bankers Choice" program.
As a wholesale supplier of financial services, Federated, a subsidiary of Aetna Life & Casualty Co., tells banks that it has "no intention of abusing this position by selling to [their] customers," a reference to firms such as the Boston-based Fidelity Group, which acts as an IRA wholesaler for banks in addition to selling its own IRAs retail.
According to Eugene F. Maloney, senior vice president and corporate counsel for Federated, "the typical exposure [of banks] to IRAs is with a liability product. The components of the IRA are straightforward -- it has a rate, a maturity, and customers just come in at tax time and fill out a form. Their experience has been administrative." Growth Levels Fall Short
But many banks find that deposits haven't grown as much as anticipated, and "they realize that a percentage of their customers have opted for self-directed IRAs at brokerage houses, or Fidelity or Dreyfus," Mr. Maloney said. Ever since IRAs were extended to all taxpayers four years ago, banks have garnered the largest percentage of IRA deposits, because their branch system made it easy for depositors at tax time. However, as the accounts begin to grow, bankers fear that depositors will begin to look for higher returns on their money with brokers and mutual funds.
Thus, the Banker's Choice program has been well received to the point where, according to Mr. Maloney, "banks are calling us."
The program is not a simple one to enact, though. "Securities require such different skills, selling, and pricing decisions, that it takes considerable resources to get it done right. A bank has to be of sufficient size to make it economically realistic," he warned. Thus, the product is aimed at those banks with $100 million or more in deposits.
Federated provides partners with marketing support, such as a profile of the self-directed IRA customer, mockup ads, and a campaign theme. "It's not being positioned as an option to the CD [certificate of deposit]," he said of the product. "We're going after the customers who have gone to Fidelity and Dreyfus, and we're saying, 'Why not come to the bank, get a superior product and more convenience.'" Not Handled by Tellers
Federated also provides training of those people who will sell the product. "It's not something to be handled by tellers," Mr. Maloney said.
The initial cost to banks is nothing, he said, although they pay for marketing the program. The deposits go into a selection of Federated mutual funds, such as a stock trust, aggressive growth equity fund, or foreign securities fund.
The wholesaler earns a 25-basis-point commission on deposits into its products, and offers to provide all the necessary subaccounting and transaction records, for which most banks choose to pay a fee. Mr. Maloney noted, though, that that cost is passed on to the customer in the form of custodial fees.
To date, he said, 90 to 100 banks have been signed up. "They don't need to be convinced of the need for the product, but they need a lot of handholding to bring them up the learning curve."
Bankers Video Service, Cedar Rapids, Iowa, is offering a packaged marketing system for IRAs called the "IRA Check-Up."
The offering "represents the next generation in marketing for banking institutions," says Roy Karon, president of the firm. It is a "complete and total campaign, with all of the planning, training, marketing, sales, and sales tracking materials you need," he said.
The self-contained package is aimed at "community banks who view IRAs as a core deposit," he said. It features videotapes explaining the entire campaign to the bank's employees -- why IRAs are an important deposit, how the plan will be implemented, and cross-selling training. Campaign managers are then given a guidebook with outlines on how to start, and encouraged to follow a checklist of implementation procedures.
Materials also include billboard campaigns, in-branch banners and videos, counter cards, newspaper advertising slicks, statement stuffers, brochures, lobby videotapes, lead referral cards, pre-produced radio spots, marketing bulletins -- virtually every detail down to pens imprinted with "I got my IRA check-up," Mr. Karon said.
In addition, the firm provides computer software that generates a deposit-growth projection sheet that banks can use to show customers how their individual accounts will grow, he said.
The firm, a training and educational company for bankers, will begin marketing the "IRA Check-Up" next month through direct mail and a sales force in the field. The product will sell for $1,995. It will be $1,695 for those banks that subscribe to Bankers Video training programs.
For the 1983 tax year, more than 85% of new IRA accounts were opened between Jan. 1 and April 16, 1984, according to a report by Trans Data Corp. of Cambridge, Md.
Total IRA contributions toward the 1983 tax year were $34 billion, 85% of which came during the same three-and-a-half month period, the report said.
The report, titled "Retirement Account: 1983 Review/1984 Preview," estimates that taxpayers will contribute $40 billion to their IRAs for the 1984 tax year. Using data culled from a survey of more than 300 retail financial institutions, the report said the total number of IRAs increased 45% between April 1983 and April 1984.
One-fifth of the banks and thrifts surveyed introduced self-directed IRAs last year, although 95% of the IRA dollars in those firms remain in time deposits, such as fixed- and variable-rate certificates of deposit.
The Trans Data report also showed that Keogh and 401(k) plans are increasing in number. More than 75% of the respondents offer Keoghs; less than 30% of the banks and thrifts, and a slight majority of nondepository institutions offer 401(k) plans, although the respondents said they saw the number of companies with this flexible retirement product double last year.
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