By integrating Lockwood Financial Services and its Pershing unit into one managed account platform, Bank of New York says, it will be able to increase distribution and launch the next generation of these products.
The banking company an-nounced Wednesday that the new platform, to be called Pershing Managed Account Services, will create one of the largest managed account programs, with $18 billion of assets. It will try to increase distribution through banks, independent broker-dealers, and registered investment advisers.
Pershing, a global provider of clearing and financial outsourcing solutions, was bought by Bank of New York on May 1. Lockwood, a provider of separately managed account services for independent financial advisers, was bought last October. Its managed account products will be made available on the Pershing platform.
Leonard A. Reinhart, the chairman and chief executive officer of Lockwood Financial Group Inc., said the new platform and increasing interest industrywide in fee-based products raise growth expectations.
"We are aggressively reorganizing our distribution services at Lockwood, and we have assigned six people to work with the Lockwood relationship managers to go out and attract business," Mr. Reinhart said. "This isn't something we are just going to put on the shelf. We are going after it."
Mr. Reinhart said merging the companies' managed account platforms will let Pershing increase the outsourcing of its products to banks and advisers.
Pershing already has $3 billion of assets under management through third-party outsourcing agreements, and Lockwood has $1.2 billion, including a relationship with Royal Bank of Canada, its largest.
"Pershing's broker-dealer network is a great distribution channel," said Richard F. Brueckner, the firm's chief executive officer. "This is a terrific marriage."
In addition to expanding distribution, the platform will be able to offer additional products. Mr. Reinhart said that, since Lockwood will have access to Pershing's supermarket of mutual funds, it will be able to start a unified managed account program.
Unified managed accounts balance all of a customer's investments - hedge funds, annuities, exchange-traded funds, and mutual funds - according to an allocation formula. The products are being sold by Wachovia Corp., Citigroup Inc., KeyCorp's McDonald Financial, and PNC Financial Services' PFPC Worldwide Inc.
"By offering unified managed accounts, we can go back to the independent broker-dealers with a new product that combines separately managed accounts with mutual funds," Mr. Reinhart said. "This puts us at the forefront of where the industry is today."
Interest in unified managed accounts has been "dynamic," he said. "People love the concept. Now they don't have to choose between fee-based products and mutual funds. We can combine them based upon a client's need."
Managed accounts continue to be among the hottest investment products. Assets in the product have grown from $161.01 billion at the end of 1996 to $442.86 billion at June 30, according to the Money Management Institute, and the trade group expects $2.1 trillion by 2011.
Gerard S. Cassidy, an analyst at Royal Bank of Canada's RBC Capital Markets who covers Bank of New York, said typically these types of meldings create economies of scale that generate some expense savings.
Developing other opportunities will be more difficult, he said.
"The holy grail in financial services is cross-selling," Mr. Cassidy said. "There may be opportunities in this situation for cross-selling, but over the years cross-selling has been difficult. It is difficult to actualize cross-selling."
Pershing's fee-based services have already bolstered Bank of New York's bottom line. It reported Wednesday that third-quarter securities-servicing fees rose 37%, to $657 million, reflecting a full quarter with the Pershing acquisition. Foreign exchange and other trading revenues grew 88%, to $92 million; and private-client services and asset management fees grew 14%, to $97 million.
Mr. Brueckner said in an interview last month that Pershing plans to work with Bank of New York's units - including the hedge fund unit, Ivy Asset Management - in order to offer more alternative investment products to its customers.
