Investment products that are managed in one division of a bank and sold in another pose a puzzle: Which unit pays the brokers to sell the product?
PNC Bank Corp., Pittsburgh, has a solution to this quandary, faced by many banks that sell wrap accounts. The bank has brought its wrap account product management team into PNC Brokerage Corp., said Joel Calvo, president of the broker-dealer.
Because the brokerage unit also pays the representatives who sell the product, it is a logical place to house the account's management, he said.
"This more closely aligns the expenses and revenues of the business," Mr. Calvo said. The three-person wrap account product management team moved to the broker-dealer from PNC's Private Bank last month.
Fees on wraps-calculated as a percent of assets under management- generally take a few years to generate enough revenue to support the product, said Kenneth Kehrer, a bank brokerage consultant in Princeton, N.J.
"It is hard for bank programs to sell wrap products because revenues go down" initially, Mr. Kehrer said. That's because the accounts' underlying mutual funds do not charge up-front fees-or loads.
While the products lose money for a few years, what they eventually reap in annual asset management fees more than makes up for their lack of loads, Mr. Kehrer said.
Wrap products generally charge annual fees of around 1.5% of assets managed. Up-front fees for mutual funds are often as high as 4% of money invested. Mr. Kehrer said it takes three to five years for a bank to make more money from a wrap fee than from one-time loads.
"If the long-term revenue goes to the private bank, it gives them (brokers) even less of an incentive" to sell wrap products, he said.
Separately, Edward Wallander has been named chief operations officer at PNC Private Bank. Mr. Wallander had been chief operating officer of PNC Brokerage. He remains a senior vice president of the bank.
A search is under way to fill the vacancy in the brokerage unit, Mr. Calvo said.
Mr. Wallander moved to the private bank in March, a company spokesman said. He now reports to Thomas K. Whitford, senior vice president of the bank and head of the private banking division. Mr. Wallander joined PNC in 1990 from Mellon Bank. He also worked at Ernst & Young and Federated Investors.
