Not all marriages between banks and investment management firms are rocky. First Tennessee National Corp. and Highland Capital Management Corp. appear to be doing just fine.
There has been practically no turnover among money managers - in part, observers say, because the Memphis-based banking company has given the unit a relatively long leash since acquiring the business last March.
Highland Capital Management (the name has been retained) sets its own compensation structure and makes its own investment decisions. With five managing principals and 30 other staffers, the new organization has its own board of directors and typically talks to the bank only several times a week.
"That is an example of how banks can make it work," said James H. McKenzie, a consultant with Spectrem Group, San Francisco. "The bank acquired them and then left them alone."
Such successes have hardly been the norm of late. As banks push into money management, they have had more and more trouble keeping their investment talent.
Over the last month, both Mellon Bank Corp. and SunTrust Banks have been hit with defections by money managers who wanted more money and more autonomy.
As part of the Highland Capital deal, the investment capabilities of the bank's investment arm, First Tennessee Investment Management, were merged with those of Highland Capital.
The combined entity - which has kept Highland Capital's office, just 10 minutes from the bank's trust operations - manages about $2.8 billion in trust and investment management accounts, according to Paul H. Berz, a principal of Highland Capital.
Mr. Berz also thinks autonomy is the answer.
"We came to an understanding with them that would allow us to continue to be full-time investment counselors," Mr. Berz said. "Our thought process is still one of an investment counseling firm, even though we're now part of a bank holding company."
Highland Capital receives a fee for managing First Tennessee's trust assets, and the unit shares with the bank the fees charged on overall assets managed.
Mr. Berz said First Tennessee approached Highland Capital with the buyout offer.
For the bank, the incentive for the acquisition was to enhance its asset management expertise, which has been the main focus of the trust division, according to First Tennessee's 1994 earnings report.
Last year First Tennessee boosted its overall managed assets by about 17%, to $4.5 billion. First Tennessee's overall trust assets stand at $12.6 billion.
By increasing managed assets, First Tennessee hopes to increase its market share, according to E. Kelton Morris, executive vice president of trust at First Tennessee.
"It's a good opportunity for us to grow it at a faster rate than historically or maybe even the markets have done," Mr. Morris said.
Mr. Morris said his bank was aware of the problems that banks encounter when acquiring money managers. Investment professionals typically prefer to remain independent, and demand a pay scale that is in most cases higher than banks can offer.
"There are compensation and cultural issues between banks and money managers, and they are best solved by not mixing" the bank and the managers, said Paul D. Schaeffer, a partner with Investment Counseling Inc., Philadelphia.
An alternative to the approach taken by First Tennessee and Highland Capital is Comerica Inc.'s spinoff of two money management subsidiaries to Munder Capital management last October.
Unlike First Tennessee, which fully owns Highland Capital, Comerica actually gave up control over the new arrangement. Comerica transferred the subsidiaries to Munder Capital, which had been raiding Comerica's staff and assets, and kept only a minority stake in Munder Capital.
"Comerica decided they couldn't compete with the Munder compensation structure," Mr. Schaeffer said.
And Mr. Berz of Highland Capital admits that without the autonomy conferred on his firm after the buyout, the merger "would not have worked."
"It's not as if we're part of a big bureaucratic system," Mr. Berz said. "We really operate like an independent entity."
