Boston Private Financial Holdings Inc.’s purchase Friday of 80% of a Boston separately managed account provider puts the company for the first time into manufacturing these products — and into conflict with an industry trend toward separating investment product distribution from manufacturing.
Walter Pressey, the private banking company’s president and chief financial officer, said the deal for Anchor Holdings LLC — announced in February at an estimated price of $68 million — will generate business by furthering the bank’s diversification of business lines to include both distribution and manufacturing despite the industry trend to the contrary.
“One of the fundamental precepts of our strategy is diversification,” Mr. Pressey said. “We want to diversify our services, diversify our products, diversify our styles, diversify our geographies, and diversify our distribution channels.”
Boston Private’s structure as a holding company that assembles independently operated financial services firms under its umbrella “permits the individual subsidiaries to specialize in an area while the company remains diversified,” he said.
The separation of proprietary product manufacturing from distribution had become confirmed as a trend in Citigroup Inc.’s big divestiture of its fund business to Legg Mason last year and the BlackRock-Merrill Lynch deal this year.
“High-net-worth clients want to work with an adviser that is free of conflicts,” said Burton Greenwald, an analyst at BJ Greenwald Associates in Philadelphia. “That has meant forgoing proprietary asset management in the interest of developing more client relationships.”
Rus Prince, the president of Prince & Associates, an investment consulting firm in Shelton, Conn., said smaller, more nimble companies continue to combine manufacturing and distribution while the overall trend is toward separating them.
“The trend is away from commingling proprietary products and distribution, but that doesn’t matter for companies that want to make money,” Mr. Prince said. “The logic is, companies want to make money, and that means offering proprietary products. Some clients will be turned off by this, but not all of them.”
W. Christopher Maxwell, a managing partner at Conestoga Capital Advisors, a Rock Hall, Md., wealth management firm, said companies can do both so long as they practice proper due diligence in their distribution channels to ensure there is no bias in favor of proprietary products.
“Boston Private has a very good business, and they seem to be focused in terms of how they are executing it,” he said. “They still have a relatively small amount in terms of assets under management, and that enables them to be a little more flexible than a trillion-dollar company can be.”
Mr. Pressey said the deal gives Boston Private access to the rapidly growing separately managed account market and to wire house distribution. Anchor, which is a value-oriented investment adviser specializing in active investment management, has distributed its products through wire houses, a channel to which Boston Private previously had no access.
“This is a segment of the high-net-worth market that works with wire houses that we couldn’t reach if we didn’t make this deal,” Mr. Pressey said. “The account size that Anchor traditionally deals with is smaller, statistically, but it is a demographic that is certainly the high-net-worth customer that we are targeting.”
“We know we are not going to supplant the wire houses,” he added, “but we want to be in a position where we can provide asset management services to customers we otherwise would not reach.”
Anchor, which had $5.5 billion of assets under management on June 1, offers four core disciplines in its separately managed accounts — balanced, all-cap, mid-cap, and small-cap. Mr. Pressey said Boston Private would look to add more separately managed account providers in other disciplines in order to develop the platform.
Geoffrey Bobroff, an analyst at Bobroff Consulting in East Greenwich, R.I., said there is a $5 billion- to $10 billion-asset threshold for companies to succeed in distributing any product. Many companies have decided to get out of proprietary distribution because they couldn’t reach that threshold, he said.
In the past four years, Boston Private, which has $31 billion of assets under management and advisement, has focused on deals to expand distribution by developing clusters of wealth advisory and investment management firms around hub private banks in Florida, New England, and Northern California.
Mr. Pressey said the company has six regions — New England, metropolitan New York, South Florida, the Northwest, Northern California, and Southern California — and hopes to continue buying in order to generate assets and client relationships.
