More Bank For Your Buck? - how the Gramm-Leach-Bliley Act will affects personal finance management - Industry Overview

Black Enterprise, May, 2000 by Jeffrey Mckinney

Brokering The Best Deals For Investors

Prior to the Gramm-Leach-Bliley Act, banks were permitted to offer only a few nonbanking products, which amounted to about 15% of their overall business. In the early 1990s, some large commercial and smaller community banks provided such products, under limited conditions and usually via third-party services, that were otherwise only available through insurance companies and brokerage firms. However, unlike bank deposits, these investments were not covered by the Federal Deposit Insurance Corp.

Similarly, securities companies offered limited banking services through money market accounts with check-writing privileges. Life insurance carriers also pushed variable life annuities, which invested in stocks and bonds.

"Commercial banks have lost a great deal of clients' assets over the years as investors continued to pour their money into the stock market. Now banks want to get that business back," says Joe Gladue, a financial analyst with the Chapman Co. (No. 13 on the BE INVESTMENT BANK list), a Baltimore-based investment bank. Also, money managers want to get a greater percentage of assets that customers would otherwise put into banks, Gladue adds.

Some critics, like Mellody Hobson, senior vice president at Chicago-based Ariel Capital Management Inc., say customers shouldn't view one-stop shopping as a cure-all. She doesn't believe that financial conglomerates will be able to meet customers' financial needs and still provide friendly, personalized service. "I'm not convinced an insurance agent could give me the best advice on how to pick a mutual fund," says Hobson. "I wonder if someone outside of his or her circle of competence is providing the best advice for what I'm looking for."

However, Gladue says that over the next couple of years, customers will see financial institutions take various approaches. "Some will try to have salespeople who are knowledgeable in all areas; others will try to keep separate sales forces so that they have experts in insurance [and] loan officers, and then those who strictly sell securities," he explains. Other firms, however, may decide to stick to their businesses and remain more traditional institutions. Gladue says it is still too soon to tell which approach will prove to be best for individual customers.

Sharing The Wealth With Black Banks

Several industry experts argue that the new law could provide some unique opportunities for African American-owned financial institutions, particularly in areas where they have an established customer base and offer personalized niche services. For instance, the new law could sprout partnerships between black-owned banks and mainstream insurance companies and brokerage firms, says Deborah Wright, president and CEO of Carver Bancorp. (No. 1 on the BE BANKS list), the New York-based parent company of Carver Federal Savings Banks, the nation's largest African American-owned bank This would enable such financial institutions to generate new sources of income by marketing new products and services to customers.