After acquiring Retirement Systems Group Inc., Peter Del Col decided he would have to offer more than just 401(k) plans to his roster of community bank clients.
The solution was literally relative.
Mr. Del Col's firm, Sunrise Services Corp., bought RS Group in March, and he immediately turned to his brother company, FundQuest Inc., to create a managed account platform that could be sold in community banks.
"I knew about managed accounts because my younger brother [Robert] is the president of FundQuest," Mr. Del Col said. "I planned that if I was successful in acquiring RS Group, that this would be one of the first products we launched to the community banks."
FundQuest, of Boston, was established in 1993 and has relationships with 13 of the 30 largest U.S. banking companies, including J.P. Morgan Chase & Co., SunTrust Banks Inc., and ABN Amro Holding NV.
Sunrise Services, an East Quogue, N.Y., holding company, was formed specifically to acquire RS Group. Previously, Peter Del Col owned Colson Services Co., a servicing agent for government guaranteed loans, which he sold to JPMorgan Chase in 2000.
RS Group, of New York, offers defined benefit, defined contribution, and 401(k) plans to 90 community banks, but to grow it had to find other products to cross-sell, he said.
"I think managed accounts are a great product that, at the right price, are designed for community banks," Mr. Del Col said. "Managed accounts enable a small community bank to offer basically the same product, and the same service that the large financial intermediaries offer."
Unlike firms that offer managed accounts through larger banks, RS Group and FundQuest are using minimums as low as $10,000 to draw community banks, he said. The typical managed account has a minimum of $100,000.
Analysts said most providers have stayed away from offering fee-based products to community banks, because the banks do not have enough large customers to create the economies of scale for the products to be profitable.
But Matt Schott, an analyst with TowerGroup, a Needham, Mass., subsidiary of MasterCard International, said that as managed accounts have entered the mainstream, and as minimums have dropped, the product has become viable for a community bank to offer.
"A lot of community banks have trust departments, and certainly these are products that can sell in a trust department," Mr. Schott said. "A lot of community banks are looking closely at offering managed accounts and mutual fund wrap products in order to compete with brokerage firms."
Managed accounts remain one of the industry's hottest products. At the beginning of this year TowerGroup predicted that the accounts would grow at a compound annual rate of 22.6%, to $1.1 trillion of assets by 2007. Mr. Schott said Tower had predicted the accounts would reach $458 billion by the end of this year, but the accounts have already surpassed $500 billion.
RS Group announced its first deal to offer managed accounts through community banks last week, when it partnered with Rahway Savings Institution. The program will launch early next month with a $25,000 minimum.
D. Russell Taylor, the president and chief executive officer of the New Jersey savings bank and a former chairman of the American Community Bankers, said community banks have been searching for alternative products for their customers.
"We are attracting our customers to use the bank for more than just a savings account," Mr. Taylor said. "We are doing it for a minimum that is unheard of. To get a money manager for $25,000 is unheard of. We are servicing a marketplace that is underserved."
Rahway Savings is comfortable partnering with RS Group, because the two companies have been working with each other for 30 years selling other products, he said.
Managed accounts will help Rahway Savings develop an "advisory culture," Mr. Taylor said. "Community banks across the board want to be advisers. We want to find products to help enhance our relationships with customers and help us in terms of developing our own growth and profitability."
Though Rahway Savings only has "a few million" of assets under management right now in 401(k) plans, the managed account platform will "easily" attract $10 million over the next 18 months to two years, he said.
Mr. Del Col said a lot of community banks are interested in the product.
"Community banks are more geared to providing advice and guidance to their client through a managed account than they are in selling a stock or a mutual fund," he said. "Managed accounts are a product that works for these firms."
