Some large banking companies are beginning to look to third-party managers in order to offer unified managed accounts, a vendor says.
Lee Chertavian, the chairman and chief executive officer of Placemark Investments, an overlay manager that specializes in unified managed accounts, said in an interview that more large banking companies are in his firm's pipeline since the Placemark partnership with Citigroup Inc.'s Smith Barney Consulting was announced in April.
"We are getting two to three calls a day from people - I mean people not nearly as large as Smith Barney but people that we had never heard from before," he said.
Mr. Chertavian said this includes some large and midsize banks. "We have at least two good-sized banks, top 10 banks, that we are in meaningful discussions with," he said. "These banks are two of our top prospects. They are in the process of deciding what they want to do."
Smith Barney is the first of the big wire houses to form a partnership with a third-party overlay manager, Mr. Chertavian said, and this lends instant credibility to Placemark, which has dual headquarters in Wellesley, Mass., and Dallas. The Citigroup unit carries "a lot of weight in the industry," he said.
Placemark is supplying overlay services to Smith Barney Consulting Services, the managed account unit of Citigroup Global Markets Inc. It does active overlay management for Smith Barney Consulting Group's new Select Portfolios, a multiple-strategy program that is available now to more than 13,000 Smith Barney financial advisers and their clients.
Select Portfolios offer various predefined asset classes and investment styles that are subadvised by unaffiliated investment managers chosen by Smith Barney Consulting Group. The portfolios are designed to be consolidated in a single account that includes automated rebalancing and cash management carried out through Placemark's overlay process.
Smith Barney clients also have access to a premium option that uses Placemark's tax management service to customize accounts for greater tax efficiency.
Analysts said some Top 10 banks have tried to build overlay management systems or buy companies that could let them manage their own unified managed account platforms. For example, in 2002, Bank of New York Co. bought Lockwood Advisors Inc., a Malvern, Pa., company that specialized in separately managed accounts. Lockwood is now recognized as the company furthest along toward offering a true unified managed account.
A true unified managed account is a well-allocated platform that includes at least three - but more probably five or six - products that are rebalanced regularly.
Lockwood is now creating unified managed account platforms for other financial institutions and expects to launch some this year that will have $5 billion to $6 billion of assets under management within a year.
Others, like Bank of America Corp., have stalled as they try to create a unified managed account platform. In late 2004, the Charlotte banking company started a multistyle account, which let it put multiple separately managed accounts on a single platform. This product is approaching $1 billion of assets under management.
Early this year, Bank of America hired Parametric Portfolio Associates, a Seattle overlay manager, to provide overlay management for the unified management account platform it plans to roll out in the first half of this year.
Charles "Chip" Roame, the managing principal at Tiburon Advisors in Belvedere, Calif., said he thinks most large banks have been slow to launch unified managed account platforms because they resisted partnerships with companies like Parametric or Placemark.
"The technology evolves so quickly that even the largest players have to decide if they want to build it themselves or rent it," Mr. Roame said. "It makes more sense when you are the brokerage firm, the bank, or the insurance company to allow the technology development to be done by a technology company."
It is easy to jump in early with technology, he said, "but the Placemarks and the Parametrics have evolved so quickly [that], if you are Smith Barney or any large firm, it is easier to evolve with them than to create the products" yourself.
"Bluntly, I'd assume every financial services firm will look to vendors," Mr. Roame said.
Mr. Chertavian said he sees a major opportunity for banks and other financial services companies to generate assets by offering unified managed account platforms. But many remain resistant to third-party partnerships, he said.
Placemark outsources its unified managed account platform to eight banks, including KeyCorp's McDonald Investments and Royal Bank of Canada's RBC Dain Rauscher. The platform has more than $1 billion of assets under management, a total the company said it expects to quadruple this year.
Mr. Chertavian said Placemark would continue to grow by going after large and midsize banks, registered investment advisory firms, and wire houses. In March it signed up Homrich & Berg, an Atlanta independent registered investment advisory firm with $1.2 billion of assets under management, for its unified management account platform.
"Really, we are looking for folks that do about $100 million per year in business," he said. "In the pipeline, we really have a decent amount of banks."
