Beverly Hills-based City National Corp.'s 401(k) business has a new specialty courtesy of a trust company it acquired.
The Dec. 31 purchase of North American Trust Co. of San Diego is letting the $6.4 billion-asset banking company promote customized 401(k) plans that include more than the typical mutual fund choices.
These customized plans include individual directed accounts, which not only allow trades of securities, but also permit the inclusion of assets such as commercial real estate or limited partnerships.
Those assets can be priced only once or twice a year by external appraisers, which makes the accounts complex and expensive for the administrator and the client.
San Diego-based North American has serviced individual directed accounts since the mid-'80s, and City National has provided similar administration for personal trusts.
"That's why we were able to do it. It goes back to our roots," said Vernon C. Kozlen, executive vice president of City National Investments. "Many of the competition's trust and record-keeping activities stem from the mutual fund business. Therefore, they do not have the experience or resources to deal with a broader array of assets."
The acquisition of North American added heft to City National's 401(k) business. Roughly 60% to 65% of the $2.4 billion of assets in 450 retirement plans now under administration at City National were previously housed in North American. About $1 billion of that is in individual directed accounts for 2,500 participants.
Previously, City National administered individual directed accounts in half a dozen plans, Mr. Kozlen said.
The individual directed ac-counts are primarily in plans sponsored by middle-market or professional companies, such as law firms or medical groups in Southern California, he said. There are such clients in Chicago, Philadelphia, and Washington and the bank is gearing up to market nationally, he added.
City National is charging an annual fee for individual directed accounts comparable to that of a personal trust account: about $10,000 for an account with $1 million of assets, Mr. Kozlen said. Fees are lower for larger or less complicated accounts.
"Individuals with large balances clearly want and need the flexibility of broader diversification," he said. "The benefits that are achieved through that are so significant that they are willing to pay a higher cost associated with account record keeping and servicing."
Observers said the prospects for such an upscale service are limited, but offering individual directed accounts, just like any other niche businesses, could be worthwhile if enough of the market is captured.
"It's very expensive for very little reward," said Paul Kampner, whose Chicago firm consults banks on 401(k) plan administration. "It would surprise me if there is any great interest in this from another service provider's standpoint."
City National Investments administers and manages $13.2 billion of assets.
