Wachovia Corp.—long a securities industry powerhouse—is becoming even more powerful.

When the nation's fourth largest banking company announced in late May that it would acquire A.G. Edwards for almost $7 billion, industry insiders and analysts were quick to note that Wachovia Securities, currently the third largest retail brokerage firm in the nation, would rise up the ranks to No. 2, behind Merrill Lynch. The newly combined firm will have more than 3,300 brokerage offices across the country, more than $1 trillion in client assets and nearly 15,000 advisors. Soon after the bank announced that it would double its private banking forces as well (see page 18).

Left out of most of the media maelstrom, but quietly building its own juggernaut, was the Charlotte, N.C., company's bank brokerage unit, the Investment Services Group (ISG). With 1,260 financial advisors and 2,500 licensed financial specialists, ISG is among the nation's largest and most successful bank broker-dealers. ISG reported almost $136 billion in assets under management as of March 31 and is growing faster than either of Wachovia Securities' other brokerage channels-the wirehouse, or Private Client Group and independent Wachovia Securities Financial network (FiNet).

Although the company doesn't break out financial results for these channels, in a first-quarter earnings conference call on April 16, the president of Wachovia's Capital Management Group David Carroll, to whom all brokerage divisions report, described "record investment sales and referrals from the general bank and our bank brokerage channel." The bank channel "doesn't get a lot of conversation," Caroll says. "But it will top $1 billion in revenue this year and has margins north of 40%. So the partnership between the brokerage company and the bank is working the best it ever has been. And as the bank expands in Texas and California, that channel will grow right along with it."

To make sure Wachovia's bank brokerage programs stay ahead in an increasingly competitive brokerage environment, and to prepare for the onslaught of retiring boomers, the company is launching three new initiatives on top of an already service-rich platform for advisors. One of these programs is the first ever to tie advisors' bonuses directly to client satisfaction. Another initiative makes it easy for advisors to offer sophisticated loan services to their clients along with investments. Finally, the bank is moving into new geographical territory, expanding for the first time into the West Coast with its purchase of Golden West Financial.

At Wachovia's level, bank brokerage must push to stay ahead as the industry consolidates. In addition to Bank of America on the national front, ISG competes with bank brokerage programs at New York's JPMorgan Chase and San Francisco's Wells Fargo. Regional competitors including BB&T Corp. in Winston-Salem, N.C., and Atlanta's SunTrust Banks nip at its heels. "This is a very competitive business," says Jennifer Thompson, a vice president and banking analyst at Oppenheimer in New York. "They are not only competing against other banks, they're also competing against pure-play brokers. They're trying to stay relevant in a very crowded field."

In the Forefront

Staying relevant and competitive is clearly a big driver behind two new initiatives announced earlier this year. In March, Wachovia rolled the first attempt by any brokerage to link advisor bonuses to customer satisfaction. The program, called 4front, is designed to increase personalized client contact and elicit advisory behavior. This in turn should bring more assets into fee accounts. While 4front is optional, advisors who adopt it can earn bonuses by building their books through increased contact with clients who have a minimum of $250,000 in assets and 60% of those assets in fee-based accounts. Advisors have to contact such clients at least six times a year, including at least once face-to-face. To get a $25,000 bonus, an advisor must have 25 qualifying accounts and bring in $3 million in new assets. Double those figures, and the rep will make $50,000. At 100 clients and $10 million in new assets, an advisor will earn $100,000.

To measure the program's success, Wachovia will send out an annual customer satisfaction survey asking clients to rate their advisors on a scale of one to seven and to say how likely they are to recommend their advisors and whether they plan to keep doing business with the firm. Advisors who score at least six or seven on all of the survey's questions are eligible for the bonus. To discourage advisors from taking those lucrative clients to another firm, the bonus vests over six years.

Clearly, Wachovia is trying to build on its existing strength in and long-standing reputation for exemplary customer service. For the last six years, the company has ranked No. 1 among banks in the University of Michigan's American Customer Satisfaction Index.