Money industry could adopt one-stop shopping

By PAUL LEIGHTON
Essex County Newspapers

The money industry has not been so quick to adopt such cross-pollination of services. Banks, insurance and securities companies have operated in their own spheres, barred from dabbling in the other's field by laws dating back to the Great Depression.

Those walls have gradually begun to fall in the last few years. And late last year, Congress passed legislation further erasing the line between banks, insurance and securities. Consumers may one day be able to visit a single business to open a savings account, buy their car insurance and pick a stock.

"You won't have to go one place for your banking, one place for your insurance, and one place for your investments," said John Bitner, senior vice president of Eastern Bank. "You'll basically have one person handling all three."

Congress decided to erect barriers between the three sectors of the financial services industry after the Depression of the 1930s. Lawmakers feared that the U.S. economy was too vulnerable to another collapse if banks had too much of their money tied up in the stock market.

But times have changed. The economy is now international in scope and guided by the (hopefully) unerring hand of technology.

"We have computers to track and measure risks," said Bitner. "Those poor guys were using pencils and paper" during the Depression.

Earlier this year, the Senate (by a vote of 55-44) and House of Representatives (343-86) passed separate bills to remove those barriers, including the Glass-Steagall Act of 1933.

Those who voted against the measures, including U.S. Rep. John Tierney, a Salem Democrat, are worried that deregulation will lead to less privacy for consumers, since a single institution could have access to all of your financial and health records.

The new rules could also weaken the Community Reinvestment Act, a 1977 law that forces banks to invest in low-income neighborhoods. There is also a question of who should regulate banks under the new rules, the Treasury Department or the Federal Reserve.

And some consumer advocates worry that full-service banks could pressure a customer seeking a mortgage to also, say, buy his insurance from the bank.

"They would have more leverage against the consumer," said Arthur Page, of the Arthur Page Insurance Agency in Newburyport.

Many observers, however, feel the changes are inevitable. Banks have long managed stock portfolios through their trust departments. But with more people investing in the stock market in recent years, many banks have opened financial services departments that offer investment advice to their less well-heeled customers.

"A lot of people were buying mutual funds and doing it on their own or over the phone," said Jim Muse, vice president of retail financial services for Beverly National Bank. "When their principals got bigger, they figured maybe it would be better if they had someone local in the community that was stable and they could trust to bounces ideas off of."

Muse said current regulations force banks to find loopholes in order to offer a full range of financial services, making the whole process more costly to the consumer through higher fees.

"There really isn't anything we can't do," said Muse. "It's just more difficult and cumbersome to go through the loopholes."

Bitner said consumers can benefit from having one person help them manage all aspect of their finances.

"It's always been part of my financial philosophy that you shouldn't have somebody working on your insurance in isolation," he said. "To do a good job, you need to know the whole picture. Then you can design all the pieces to fit together."

Banks, however, might not be so eager to enter the insurance business, according to Page, the insurance agent from Newburyport. People seeking insurance claims aren't always the happiest of customers, he said, and banks risk losing other business if they alienate a customer over an insurance claim.

"One-stop shopping can also shoot you in the foot," said Page. "If you mess up one item with a customer, you could lose all of their business."

Page said he does not fear competition from banks who might want to get into the insurance business. "If they can do it better than I can, good luck to them," he said.

In fact, said Page, many owners of independent insurance agencies who are nearing retirement are hoping banks offer to buy their business.

Dan Santanello, a vice president at the investment firm AG Edwards & Sons in Peabody, said most consumers won't even notice the difference when deregulation takes effect.

"The walls have been broken down going back five years ago when banks started offering financial services," he said. "I think it will be negligible in terms of its impact. The bottom line is who is going to deliver the best service and give the best advice."