04.04.18
Candid Conversations: Marc Vosen Part 1
by: David Macchia
This is part one of a three-part interview series with Marc Vosen of Key Investment Services.
If you’re reading these words you likely already know Marc Vosen. Perhaps, even for a long time. He’s been a stalwart participant in the bank channel since its earliest days. He is someone, it’s fair to say, who is much loved and admired by many in the industry. As president and CEO of Key Investment Services, Vosen has built a successful program that has enjoyed exponential growth. In this interview, we learn about Vosen’s role in the nascent bank annuities industry, his early role in helping form BISA and how he sees the industry moving forward in the face of uncertainty. In our discussion, Vosen is candid about the challenges of heading-up a broker/dealer owned by a bank. He also talks about his outlook for the future of the channel, and he discloses some personal insights that may surprise.
On the Formation of the Bank Channel
David Macchia: I’d like to start by having you look back. I know some of the details, but not enough about the genesis of the bank channel. I would love your perspective on how this very vibrant channel came about. What was it like in the very beginning and what role did you play in helping to lift it up?
Marc Vosen: Sure. I'm going to say that the bank channel started about 35 years ago. Glass-Steagall was still in effect, and back then, banks could own a broker/dealer. However, the rules were very restrictive because regulators wanted to make sure that customers weren't confused between what products were FDIC insured and which weren't, to the government came out with this policy called the Interagency Statement. The Interagency Statement basically said, if you are going to be selling non-FDIC-insured products in your bank lobbies, you need to abide by a set of rules, a lot of which have to do with site and circumstance. In other words, the selling of investments had to be separate from the teller line. It couldn’t be anywhere where there are FDIC-insured signs, etc.
If you think about it, at that time, it was really about fixed annuities — there were no index annuities created yet. Variable annuities were just starting to come to the forefront of the business, but that was a securities product, in any case. Most banks got into the fixed annuity business, and, in some states, a bank could own an insurance agency. In certain other states, you weren't allowed to own an insurance agency. Therefore, you had to go through a third-party marketing company, like an Essex corporation, and there were many of those out there that supplied products or allowed banks to rent their agencies. They put their employees into the bank for the purposes of selling fixed annuities. It was kind of baby step into the business for the banks because after you leave the realm of FDIC-insured products, the next step you take is into annuity land because the products are guaranteed by the insurer.
Those programs became very successful. Banks became the number one distributors of annuities. From there, those who got started in the broker/dealer business, believe it or not, were very conservative at the outset. Some of them allowed reps to sell only municipal bond funds and government bond funds. Then as they started to become more comfortable, products and services began to expand. Now, most major banks have a full investment services program. They're wholly owned subsidiaries of the banks, and, for the smaller banks, they rent them through the TPMs, like LPL or Cetera or Raymond James. The credit unions have CUNA and CUSO. It's been quite a development over the years.
Macchia: I've often made the analogy, having grown up into the insurance business, that people tend to operate in one of two ponds. There's a saltwater pond and a freshwater pond. This refers to the fact that there are people in the field, and there are people who work in home offices, and, oftentimes, they don't communicate with each other well, nor understand each other. They don't adequately recognize each other's needs and challenges. Was the bank able to understand your needs and concerns and related issues when you started out?
Vosen: No. In fact, 35 years later, they still don't. But it's the truth. One of the big struggles is that under the Interagency Statement, it makes it very, very clear that there needs to be a separation of church and state. Where banks fail is they don't understand how an insurance agency or how a broker-dealer is managed and run. We are regulated in a totally different manner, and there is always this control tendency of the bank wanting to take control, and trying to run it like a depository institution. That just doesn't work. Every time that a bank has tried to grasp it, get their arms around it, and try to control it, they get into regulatory trouble, and they start losing money because it must be run differently. I mean, it's so different; we even have different holidays when we’re closed.
Macchia: I get it.
Vosen: It's very hard for the banking executives to really understand this. Because they own us and we work in their facilities, they think that they can run the business and control it, and they just can't. They're not licensed. If you're not licensed, then FINRA and the SEC has an issue of non-licensed people making decisions for a broker/dealer, and that's a no-no.
Macchia: A big no-no.
Vosen: That struggle continues. Believe it or not, it's part of the fun of the job — it's always been fun. “How do you politically maneuver this thing, so you are able to do what you need to do, you're able to protect the bank, and you're able to make your bosses, the bank executives, look good?"
Macchia: I’m not sure everyone would describe it as fun. But it’s been a long road to get to where you are now.
Vosen: I’m in my 13th year at Key, and we started from zero. We started with zero brokers, zero clients, zero production. At the end of 12 years, in 2017, we had gone from zero to $128 million in revenue and from zero to 330 brokers.
Macchia: And, if I understand it correctly, along the way, leading in some very important metrics of productivity.
Vosen: Yes. Now, this is not my data. This is data that is provided by Kehrer Bielan and Associates, Scott Stathis and Jack Cramer. They do this peer comparison analysis, and we're at the top of the heap in just about every way you can measure it.
Macchia: Well, that result is not disconnected from great leadership, to be sure.
Vosen: But it's not me. The only thing that I did is I hired the right people.
Macchia: Yeah. Well, that's the most important function of a leader.
On the Formation of BISA
Macchia: Can you talk a little bit about the idea behind the formation of BISA, how it came about and how it's grown into such a significant organization?
Vosen: Yes. The Bank Insurance and Securities Association is now 15 years old. If you go back 15 years, there were two other organizations. One was called FIIA, and they represented the insurance side in the bank channel, and then there was BSA, which represented the securities side in the bank channel. Both organizations were basically competing for the same banks, the same membership, the same sponsorships from the vendors and the product providers. Both groups were fledging, and they were basically on the verge of bankruptcy. Finally, the minds got together, and they said, "We need to join these organizations together, merge them, and we can survive." Think of today, this happens all the time.
Macchia: Right.
Vosen: That's what happened. The boards put the two organizations together. Actually, we still have two folks that are on our Emeritus Board. Rob Comfort, who came from the BSA side, and Bob Mittel, who came from the FIIA side. They really represent the founding of BISA. When BISA was formed they brought in some new board members. Three, actually; myself, Dan Overbey, who was at First Tennessee at the time, and Sam Guerrieri, who was with M&T.
Sam and Dan and I were the new board members. As time passed I became president of the organization. I took over for John Vaughan, and John Vaughan took over for Rob Comfort. We decided to make changes. We were growing, we were getting more sponsorship, but the folks that were running the organization for us also had a consulting practice. We felt there was a little bit of a conflict there. So, to really grow our organization, we needed to have professional management.
Macchia: Certainly.
Vosen: We hired a company called SmithBucklin. We're very happy that we did. SmithBucklin cleaned up our house. Things were going well. Then, we went through the financial crisis, as you know, and that kind of slowed things down, but we had enough financial stability that we were able to make it. We were able to support our membership.
A lot of people lost their jobs during that period. We were able to provide free admission and free hotel rooms to all our ex-members who were now unemployed, and we gave them opportunities to network and to find new jobs. I think well over a hundred, maybe even a couple hundred, have found new opportunities through BISA. We're very, very proud of that. We have continued to grow. We've grown our membership. We are now professionally managed, we are very financially sound, and we're in a great place.
I call it a fraternity. It's our own fraternity. In fact, every year at our annual convention, I consider it the annual ten-year high school reunion. Everybody knows everybody, it's a very small group of people ‒ about 750 ‒ and everybody gets along. It's a wonderful thing. I'm very happy with that.
Look for part two of Marc Vosen’s interview in the April 12 issue of Portfolio Weekly.