Comerica Inc. says it plans to aggressively expand its retirement services unit by hiring, increasing distribution, and moving to an open architecture platform.
Bill Feldmaier, who was hired in August to be a vice president and national sales director for Comerica’s retirement services group, said in an interview that the proprietary 401(k) platform had been slow to grow because the bank had not broadened its product offerings.
“The growth has been relatively static for the past few years,” Mr. Feldmaier said. “We are revamping our vision and our strategy. We are not taking our focus off of proprietary products. We think by making it one of the solutions we can offer it will grow.”
Mr. Feldmaier said he thinks 20% of the retirement group’s annual growth during the next three years will come from increasing its proprietary assets under management by offering these products alongside nonproprietary ones from large fund companies such as Fidelity, MFS, Scudder, and Oppenheimer.
“In the past, the bank sold only the bank’s proprietary trust products,” he said. “Rather than just having our people sell Comerica’s proprietary products, we want to be more consultative.”
The retirement services group has $4.8 billion of assets under management. In addition to expanding proprietary assets under management, Mr. Feldmaier said, he expects to increase nonproprietary assets under advisement from $150 million to $1 billion in the next three years.
Most banks have moved to open architecture platforms. A report by Dover Financial Research, a Boston firm, said 69% of banks are using open architecture, 5% sell only proprietary products, and 26% have adopted hybrid platforms with proprietary and nonproprietary products.
However, proprietary products and proprietary managers continue to dominate portfolios. Bank-run managed accounts still hold 40% to 60% of assets in proprietary products, according to Dover’s research.
Mr. Feldmaier said an aggressive effort to hire consultants is already in place. Since his hiring, Comerica has added three consultants to its previous staff of six, and he hopes to increase this force to 15 or 20 in the next two years.
The company has hired in Dallas and San Francisco, Mr. Feldmaier said, and will look to continue developing a presence in its home city, Detroit, as well as in Grand Rapids and Lansing, Mich.
“We are going to continue to look out of state where we have a good brick and mortar footprint in Texas, Florida, and California,” he said. “Certainly those are key markets for us in the 401(k) space that we could expand into.”
“Our current market share with our existing clients is not where we would like it to be,” he said.
Eventually, Mr. Feldmaier said, Comerica will look to expand in the Midwest through opportunities in Minneapolis and St. Louis.
The new focus on offering open architecture will help Comerica draw retirement consultants who have already developed a good book of retirement business, he said.
Analysts and executives said that in recent years regulatory scrutiny and the high cost of compliance have driven many small banks away from proprietary products altogether.
Goldman Sachs Group Inc., Reserve Funds, and Federated Investors Inc. are among the large asset managers that have been snapping up small fund families from banks.
Steve Krisik, a senior vice president of investments at the Harris Private Bank unit of BMO Financial Group, said not all banks are getting out of proprietary products altogether. Banks can carefully mix their own products with third-party products, he said, adding that Harris Private Bank offers “guided architecture,” a mix of specifically selected third-party products along with its own.
“By broadening our offering we can appeal to more customers,” he said.
Since Harris began offering nonproprietary products in the late 1990s it has been able to expand assets under management, recording 11.1% growth from the end of 2003 until this Sept. 30, for a total of $18.5 billion.
Mr. Feldmaier said open architecture has become a buzzword. Comerica is not looking to quit proprietary asset management, he said, but it wants to use nonproprietary offerings to expand distribution of Comerica’s proprietary products. “We are committed to our proprietary products,” he said. “We want to use these as a component of a retirement consulting shop within the bank.”
Mr. Feldmaier, who was a vice president of Midwest retirement plan sales at Scudder Investments, said Comerica was driven to offer open architecture because of regulatory concerns about conflicts of interest, but the move now strikes him as helping his unit.
“I think we can generate revenue for the bank by being a consultant rather than just a product provider,” he said. “We are not only going to be able to generate more revenue but [also] will generate revenue sooner by being the trusted advice provider.”
