BANK SOUTH CORP. has taken a look at the record keeping of its trust depanment and found the most profitable way to conduct the business is to hire an outsourcer.
Earlier this year, the $6.6 billionasset banking company started to outsource the participant record keeping aspect of its trust department for its 401 (k), pension, and profit sharing plans business.
By moving to an outsourcer, the Atlanta-based institution has also been able to increase its level of customer service, while adding to the number of investment options for plan participants.
Participant record keeping for 401 (k), profit sharing, and pension plans is the function which allows customers to get daily valuations of their funds as well as make changes in the no investments on a day to day basis.
The bank offers the service to plan sponsors who are in need of an outside organization to provide plan subscribers with a high quality of service and dally account valuation.
For the most part, the bank's customers are small to midsize companies -- in a wide of range industries -- that maintain employee benefit plans. "Customers who want to offer a profit sharing or 401 (k) plan, but do not want to perform the servicing functions, hire us to act as a trustee for the plan," said Roger M. Birkholz, manager of institutional client services. "The employees still deal with the company in some form, but the responsibility for record keeping and investing is placed in the hands of the bank,"
Mr. Birkholz said over the last few years, there has been a real shift in customer needs for 401 (k) plans where banks are seeing the need to provide daily valuation with their record keeping services.
Many banks are getting into this business to compete with the large mutual fund companies that have been offering such services for some years, said Mr. Birkholz.
"By being able to provide daily valuation, we are able to complement all of the other services we are offering, which provides maximum benefits to our customers," said Mr. Birkholz. "The reason for doing it is not to generate the fees that go along with the record keeping, but rather to attract the assets from the plans.
"As a function of providing the mutual funds services, we have to provide the record keeping services," he continued. "Given the tremendous market that is out there for 401 (k) plans, we felt the need to both hold on to the existing customers and attract new ones."
Management determined after reviewing all of its options that installing the systems and performing the function in-house was too expensive.
"Outsourcing the function was a cheaper solution because we did not have to purchase the systems and it also provided us with the foundation to build future of the business," Mr. Birkholz said. "We don't have to worry about having the staff to support the products and services. It is now in the hands of the outsourcer, and completely their responsibility."
The bank hired Pittsburgh-based Federated investors, an investment management firm, to provide it with the services to buy and sell shares in the firm' s 250 mutual funds and do the daily record keeping.
Bank South currently has $1.7 billion of assets under management, of which 70% are in 401 (k), pension, and profit sharing plans.
John J. Mason, a senior vice president and bank analyst with Interstate/Johnson Lane Inc. in Atlanta, said the bank is well regarded as a prime takeover candidate in Atlanta and as the local economy continues to get better, the bank is continuing to improve its balance sheet.
"They have been able to xxx around their retail side and increase market share," he said. "They really seem to be doing many things fight.
"They have raised capital and improved market share and got rid of problem loans," he continued. "They are in tune with the market- which makes them a target for a takeover. The key to becoming a target is having a good franchise, and it is a good franchise."
Before it started to outsource, the bank had in place a number of funds which offered a few options to plan subscribers. Now that it is working with Federated, it is able to package a number of the firm's funds with its own and offer subscribers more investment options.
"We don't have the critical mass to start enough of our own funds but over time, as we build up our book of business and by using some of the Federated funds, we will have the springboard to cash out and start our funds," Mr. Birkholz said. "By working with Federated, we are really building the foundation for our future."
One of the benefits that Bank South has reaped by working with Federated is the ability to remove a lot of the paperwork associated with offering and administrating the plan.
"By offering true daily valuation and the 800 number, a lot of the enrollment and the switching of investment vehicles is handled over the telephone," said Mr. Birkholz. "The participants no longer have to fill out the paperwork and hand it in to the plan sponsor, who then has to send it to us to be entered manually."
Daily valuation also gives plan participants the ease of moving from one fund to another whenever they want without being locked into set guidelines such as only making changes on the first day of the new quarter.
"In some cases, plans let subscribers change funds or re-allocate funds once a quarter, but they need to get the paperwork in 15 days before the end of the quarter and the effective date of the change is not until the first day of the quarter," Mr. Birkholz said. "In effect, the plans are forcing people to make a decision two weeks before it became effective. With daily valuation participants can switch the monies today and it will be effective tomorrow.
"What really makes the outsourcer appealing to us on the bank side is that traditionally, record keeping is a loss leader, it is a necessary evil in order to build up assets." he continued. "The thrust of the operation is to manage money, and by using this resource, we are able to give customers what they want, and we are provided with an attractive tool to increase business."
