More Bank for Your Buck

The overhaul of banking laws presents new opportunities and a series of challenges. Here's how these changes may affect you.

lead to higher fees. Larger banks already charge 15% more than locally owned smaller community banks, according to a recent PIRG survey. “As industry consolidation continues, banks will have even greater power to push fees higher as their share of the financial market increases,” he adds.

Instead of passing on cost savings to consumers, merging banks have raised fees, says Charlene Stern, president and CEO of Stern Marketing Group, a
Berkeley, California-based financial services firm. A primary example was the acquisition of Los Angeles-based First Interstate by San Francisco-based Wells Fargo. Not only was it important for Wells Fargo to cover the costs of the acquisition but also to make the stock more favorable for Wall Street analysts. She says it did this by immediately firing employees and consolidating overlapping branches. “Thus,” she says, “the focus shifted from customer service to cost cutting.”

Stern believes that consumers-particularly African Americans-could be ignored as financial companies concentrate on how best to compete against other merging institutions. She believes erratic cost-cutting practices will be the first and most overriding focus as firms strive to show shareholders positive returns.

Another issue surrounding the new law is privacy. The one-stop-shopping effect provides companies access to more of the consumer’s personal information. Say you come into a $50,000 inheritance. There’s nothing to prevent your banker from peddling your information to a new broker partner. Concerns abou
t privacy protection have already prompted the Clinton administration to review the law. This could result in new legislation to ensure that an individual’s rights aren’t jeopardized.

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

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