Endorsed vendor status is used to position some firms to the front of the line with banks looking to purchase products or services. Is this in the best interest of the bank?
Most banking associations have an endorsed vendor program. This entails a process of review by the association board and a selection process, which is as varied to the associations as are customers of the bank. Some associations look to the quality of services available with each vendor, and most have a set review process that renews each vendor contract every two to three years.
Another consideration is the discounts that can be offered to the group by providing a single source option. This could mean as much as 25% savings on some products and services. The members benefit, and the association provides a real value. Vendors find banks a stable clientele and good people to work with.
Often times associations will ask the competing vendors to propose a revenue sharing arrangement with them in exchange for premier access to this prestigious group of bankers. This can lead to some gray areas in terms of the due care process. For example: Bank Owned Life Insurance vendors often have limited access to all products. Some may have direct access to certain quality insurance carriers and no access to others. Some insurance companies will limit or restrict access to their product line based on exclusivity or for the protection of the BOLI firm.
Some BOLI firms only offer products and outsource all of the plan administration servicing to different groups for reporting and filing. This is fairly common and not unusual. Some firms will “pick up the cost” of providing this service for the bank. This could be considered a “rebate” under most state insurance laws and banks should be cautious about this type of offer.
One prominent banker was asked about this and said, “When banks rely on the endorsement of the association only, they may be doing what is in the best interest of the association and not the best interest of their bank. Each bank should follow the guidelines of the OCC 2004-56 Bulletin when purchasing BOLI.” Banks should ask questions of endorsed vendors and ask for the financial terms used in obtaining the endorsement.
For more information on how bank or corporate-owned life insurance (COLI) can help your business, please contact a consultant at Executive Benefits Network.