It's time to hone your investment skills.

Not every investment product offered by Wall Street should be embraced by community bankers on Main Street. The critical factor is risk/reward, notes investment banker Nicholas Betzold.

"There are no bad bonds," says Betzold, "only bonds at the wrong price." Betzold is senior vice-president

"There's always a price at which a risk/reward ratio turns for you, and you find more reward than risk," adds Betzold. "However, many investment products being offered to banks have poor risk/reward ratios."

Specific financial instruments to watch, he suggests, include adjustable rate mortgages, newly issued callable bonds, and many new issue adjustablerate agencies.

More important than in-depth knowledge of such instruments is a familiarity with investment analytics fundamentals, which bankers can use to make better investment decisions.

Manage the broker. In a recent interview with ABA Banking Journal, Betzold outlined several ways bankers can make the most of their investments and the banker/broker relationship. The latter is pivotal, noted Betzold, because the broker's job is to sell financial products to bankers. In few cases do brokers actually help bankers decide between investment options, a service more commonly demanded by larger institutional investors or other big-ticket customers.

At a gathering of community bankers in one state recently, a banker told Betzold: "We generally all came from the loan or accounting side, and we inherited oversight of the investment portfolio. None of us have had a good grounding in investment fundamentals."

If that's true, says Betzold, "you have a risky situation between brokers and bankers."

One rule of thumb to keep in mind in managing that relationship, says Betzold, is to treat the broker as an employee of the bank.

"The broker has to have an incentive to work for you," explains Betzold, "and he has to know that there is a controlled relationship going on and that the banker, in fact, is the one in charge."

In practice, this means motivating the broker to look at the market-place and determine what investments are best for the bank - not just what the bank is willing to buy. "Low-risk" adjustable-rate securities (with caps), for example, may be an easy sell, even though a longer-term fixed-rate security might offer a better risk/reward.