Alliance Capital Management Holding's deal to buy the investment management firm Sanford C. Bernstein is another signal that banks will have to fight hard to maintain position in managing assets for the wealthy.

The $3.5 billion cash and stock deal, announced Tuesday, would combine the high-net-worth management experience of Sanford Bernstein and the product diversity and national reach of Alliance to create a formidable competitor.

The deal is an "invasion of turf," said Barton Greenwald, a consultant in Philadelphia.

Once the only game in town in the wealth management business, banks have been steadily losing market share to investment managers and mutual funds. Now more rich people place their assets with money managers than with banks, Mr. Greenwald said. Though banks still control a substantial share of these investors' assets, "whether they'll retain their strong position is open to question."

Axa Financial - which owns a 60% stake in Alliance - is looking to move into the high-net-worth category, which is "the fastest-growing segment of the money management business," said Ed Miller, president and chief executive officer of the French insurer.

The wide range of Alliance's products - including insurance, annuities and other investments - would make the combined outfit especially appealing to the wealthy, said Lewis Sanders, chairman of Sanford Bernstein.

Joe Hershberger, managing director at Putnam Lovell Securities in New York, noted the companies' complementary strengths: Alliance's equity growth funds and Sanford Bernstein's value funds. Richard Davies, managing director at Alliance, said Bernstein had a "crying need" for growth products it could offer to wealthy clients.

Executives at Sanford and Alliance said the broader reach of the combined company would give it an edge in attracting wealthy clients. "Distribution is where the battle is going to be fought," Mr. Miller said.

Many investment management firms are moving into the high-net-worth market, causing money management firms to purchase banks or seek alliances with them. In the most notable such deal, Charles Schwab announced in January that it would buy U.S. Trust for $2.7 billion.

The key to the Alliance's success will be getting and keeping key talent, said Mr. Sanders, who pointed out that the stock-swap part of the deal is structured to give Sanford Bernstein employees an incentive to stay..

Trust departments have lost market share largely because their investment strategies tend to be very conservative, Mr. Greenwald said. "Banks and trust departments still have an image problem," he said.

As once company, Alliance and Sanford would have about $475 billion of assets and revenues of $3.2 billion. The deal calls for Alliance to pay $1.5 billion in cash for Sanford Bernstein, plus 40.8 million new limited-partnership units.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.