3 Major Thrifts to Dial for Dollars : Phone Solicitation Staffs to Sell Certificates of Deposit

San Diego’s three largest financial institutions plan to dial for big dollars this year through telephone sales operations.

Imperial Savings & Loan Assn., Great American First Savings Bank and Home Federal Savings & Loan Assn. are all hoping to raise hundreds of millions of dollars in new deposits through direct solicitation of consumers by phone.

San Diego is also a target market for some out-of-town financial institutions--including First Nationwide and American Savings & Loan--with similar plans to raise funds by telephone and avoid the high costs of new branches.

Increased competition may raise the interest rates available to savers, but the scramble among S&Ls; to make use of this powerful technique may have another and less desirable effect. “Your phone may become like your mailbox--loaded with junk,” according to Richard McCudden of Trafalgar Securities Corp. He pioneered the telephone technique while an executive with American Savings.

The lure for these and dozens of other institutions watching and waiting on the sidelines is simple: Securing deposits over the phone is less expensive and more effective than building more branch offices.

“In a deregulated environment, you have to find ways to deliver services at the lowest cost,” said William W. Haynor, senior vice president of strategic planning at Imperial Savings.

“Traditionally, we looked to our branch offices as the primary distribution channel. Then we went to direct mail for offering things like credit cards. Now, in the last year, telemarketing has cropped up and it’s going to get bigger and bigger in the second half of this decade.”

In the last five years, financial institutions in general and savings and loans in particular have been freed from government-imposed interest rate limits on deposits. That trend has increased competition for funds and put pressure on management to cut costs.

Imperial sold or closed 30 offices last year, reducing its branch network to 100 locations.

Still, the S&L; managed to increase its total deposits for the year to $5.7 billion from $4.4 billion in 1983. Its fledgling telemarketing department accounted for at least part of the gain.

Haynor would not reveal just how much money has been raised since the program was begun in September, but he said its contribution to expected deposit gains in 1985 “will be significant.”

Other institutions said that even a small staff can raise several hundred million dollars a year.

Marla Brayshay, sales development director at Great American, said a telephone solicitor should raise a minimum of $1 million per month. Since the thrift began its test program in July, sales staff members have averaged between $1.5 million and $2 million per month in new deposits.

Based on that average, Great American, with its current 10-person staff, could raise $120 million to $200 million in 1985, but will likely surpass those amounts with planned additions to its sales staff.

Home Federal kicked off its program just two months ago and already employs 10 solicitors. Later this month, the staff will be increased to 14 and by year’s end at least 25 people will be staffing the phones to sell certificates of deposit, according to Mark Crowley, manager of Home Federal’s telemarketing department.

Although 7% of all consumers will hang up before sales representatives even finish identifying themselves, Crowley said, the telephone sales techniques are still anywhere from 2 to 10 times more effective than direct mail marketing.

“The potential is limitless,” said Crowley.

On the outer fringes of that potential is Financial Corp. of America, the holding company parent of American Savings & Loan Assn. Financial Corp. was the first banking company to use the telephone sales technique to raise consumer deposits, starting its program in October, 1983.

Financial Corp. and other banks and S&Ls; had earlier used telephone sales to raise funds from institutional clients. In addition, telemarketing has been used extensively by securities brokers and other financial services firms for years.

But the direct solicitation of consumers over the phone to raise deposits was still considered a revolutionary concept as the stodgy S&L; business entered the 1980s.

By mid-1984, Los Angeles-based American Savings had more than 460 sales representatives and 150 support personnel collectively raising more than $1 billion a month in new deposits, according to McCudden.

Though American Savings’ rapid growth raised the ire of federal regulators, new management brought in by the government last summer in the midst of a liquidity crisis is continuing to use the telephone sales force, according to a company spokesman.

“Other savings and loans would be crazy” not to use telephone sales forces to gather deposits, said McCudden. “We proved that it is a very cost-effective way to raise deposits. But others may be afraid of being branded as aggressive as” Financial Corp. by regulators.

Ironically, First Nationwide Savings & Loan Assn. of San Francisco, whose chief executive was highly critical of Financial Corp.’s past growth policies, is now embracing telemarketing as a way to expand and is eyeing San Diego as fertile ground to plow with its new marketing tool.

“We hope to penetrate the retail markets where we don’t have branch representation,” said David Bretoi, president of First Nationwide Investment Services, a subsidiary of the thrift that was established to manage the telephone sales force.

In a similar move to gain low-cost entry to the market, First Nationwide last year set up 10 limited-service satellite offices in K mart stores throughout San Diego County. Bretoi said those offices may be used as a base of operations for the telephone sales effort later this year.

Incursions of this sort into its primary market area are among the reasons Great American began its telemarketing program. “Competitors were calling our customers,” Brayshay said. “We had to react.”

Jonathan Gray, an analyst with the New York brokerage firm of Sanford Bernstein & Co., said telemarketing has been “enormously successful, particularly with the affluent segment of the market.”

But as the market “becomes satiated, it will become less cost-effective” for financial institutions and more lucrative for consumers, he said.

First Nationwide, for instance, plans to offer rates of up to one-quarter of a percentage point higher over the telephone than in its branches.

“It’s a highly alienating medium,” Crowley said. “We call when people are at home with their families, when they are cooking dinner and on the weekends. So we have to give them a reason for doing business on the phone. We have to give them an incentive.”

Primary among incentives is higher interest rates, he said, though Home Federal will also use contests and free services of various kinds.