Some thrifts will soon offer brokerage services
Boston — Dan D. McConnell has an ambitious goal: to turn hundreds of the nation's savings and loan associations and mutual savings bank offices into brokerage houses.
The former investment banker heads a new venture, Invest, owned by 28 thrift institutions that earlier this year won permission from the Securities and Exchange Commission (SEC) and the Federal Home Loan Bank Board (FHLBB) to, as the company puts it, ''reposition themselves more competitively in the financial-services area.''
What that means is that brokerage offices will be established in some visible spot in thrift branches. Customers entering such a thrift will be able not only to deposit or remove money from their savings account, pay their mortgage bill, or make a consumer loan; they will be able to see the registered representative manning the Invest desk and buy or sell stocks, bonds, and mutual funds.
The first, pilot operation will open Sept. 28 in four branches of the four founding partners of the Invest program. These are Coast Federal Savings and Loan Association, Sarasota, Fla.; Perpetual American Federal Savings and Loan Association, Washington, D.C.; City Federal Savings and Loan, Elizabeth, N.J.; and California Federal Savings and Loan Association, Los Angeles. A month later, operations will start in another 23 branches.
By the end of two years, Mr. McConnell hopes to have Invest ''modules'' in some 2,000 offices of hundreds of S&Ls or mutual savings banks. ''We hope the Invest logo will have the same public identification as the Visa logo right now, '' says McConnell.
As might be expected, the securities industry is not happy about this planned new competition. It is suing, charging that the federal regulators exceeded their powers and that the thrifts are violating the Glass-Steagall Act separating banking and security industry activities. Mr. McConnell says the SEC and FHLBB were within their powers and that Glass-Steagall does not apply to thrifts, only commercial banks.
Whatever, Mr. McConnell expects to complete capitalization of the ISFA Holding Company, owned by 28 thrifts in key cities around the country, early in September. It in turn will own ISFA Corporation, a registered broker-dealer, which will take the orders from the Invest offices in the thrifts. McConnell predicts that ''hundreds'' of other thrifts will subscribe to the service in its first year of operation.
Invest will be unique in some ways. Its operations will be manned by registered representatives, trained and licensed to offer investment advice as well as take orders. They will, however, be told to offer the stock-investment recommendations of Value Line, a respected, major advisory letter, rather than their own personal tips. (''We will de-emphasize personal opinions to the nth degree,'' says Mr. McConnell.) But they will also be free to look at the financial situation of each customer and make suggestions about where to invest - for instance, how much in stocks, how much in bonds, how much in mutual funds, or whatever.
Another major advantage for investors, Mr. McConnell says, is that the Invest brokers will be salaried only. Their income will not depend on the amount of brokerage commissions they generate. Thus they will be under no pressure to turn over a customer's account in order to make extra commissions, he says. Nor will they be tempted to put a customer into investments with higher commissions, such as futures. And Invest will not be pushing any new stock or bond issues, as a brokerage house that also underwrites new issues might.
''This should eliminate personal conflicts of interest for our brokers,'' says the Invest chief executive.
Mr. McConnell figures that the desirability of this system for individual investors is what persuaded the Washington regulators to give their permission for the venture.
Invest will be competing to some degree with discount brokerage services being offered in some commercial banks and thrifts by Fidelity Brokerage Services Inc., part of the Fidelity financial group in Boston. That operation got going February 1, and it has already attracted some 15,000 accounts, according to a spokesman.
In this operation the officials in the bank or thrift are not registered representatives. They can only pass on orders for securities to Fidelity. In some ''limited services'' operations, the customer will call Fidelity directly through an ''800'' number from a thrift or bank branch, or from his own office or home.
Mr. McConnell says the reduction in ethical problems afforded by the Invest operation has enabled him to attract brokerage salesmen with relative ease. Another factor is that they will not have to chase customers so hard by becoming members of clubs and so forth, because they will be dealing primarily with the established customers of the thrifts.
In any case, Mr. McConnell says he believes the timing of the launching of Invest is fortunate. The revival of the market should stimulate orders.