Analysts scratched their heads in early 2005 when Compass Bancshares Inc. sold its $1.2 billion proprietary mutual fund family to dive headfirst into its new open-architecture unified managed account platform.
Compass, of Birmingham, Ala., was among the first banks to sell its fund arm, a proven entity, and adopt a unified managed account platform, a relatively untested and unproven vehicle.
"This was a risky decision," said Todd Smurl, the managing director of investments at Compass Bank's wealth management group. "We were redefining our business at the right time, and we decided not to take a baby step."
Two years later the platform has $2.05 billion of assets under management (as of Sept. 30) and the wealth management group has increased its total assets under management 26.1% in the past year as it squares off against large outfits like Bank of New York Co. Inc. and Bank of America Corp. in the unified managed account realm.
Mr. Smurl said he expects 15%-20% annual growth over the next three to five years as unified managed accounts gain popularity.
"This has become our core investment program," he said. "It has become critical for a bank's long-term success to have an open-architecture, unified managed account program."
Mr. Smurl said the unified managed account platform, which Compass calls SmartPath, allows the $30 billion-asset company to reach more customers.
The platform, which has increased 17.1% in the past year, is still being distributed only through Compass' private client group to high-net-worth clients.
"We are finding that in addition to clients traditionally attracted to the bank, this platform has opened us up to new segments of prospects that are interested in this product and what we are doing," Mr. Smurl said. "Clients are interested in open architecture and best-of-breed investing."
Compass, which had $5.8 billion of assets under management on Oct. 31, sold its proprietary fund group to Goldman Sachs in February 2005, six month after it began offering unified managed accounts. Mr. Smurl said the unified managed account platform is managing "an increasing percentage of our assets."
Since Compass sold its proprietary funds other small and midsized banks have followed suit. Executives at small banks said that, since most have now sold or never had proprietary products, their transition to unified managed account platforms with open architecture will continue to be swift.
Brian Downs, a senior vice president at $1.8 billion-asset Macatawa Bank in Grand Rapids, said open architecture managed accounts suit small banks because it allows them to compete head to head with larger players.
Unified managed account platforms are enabling small banks to compete for wealth management share.
Analysts said large banks have spent recent years developing their own unified managed account platforms, while most smaller ones have turned to third-party providers such as FundQuest to offer these accounts to customers.
In 2002, Bank of New York bought Lockwood Advisors Inc., which specializes in separately managed accounts and launched a unified managed platform in 2004. Analysts said Lockwood, of Malvern, Pa., is regarded as the leader in unified managed accounts - $760 million of its $23 billion of assets under management are in those accounts.
Lockwood, a unit of Bank of New York's Pershing Group Inc., is now creating unified managed account platforms for other financial institutions.
More banks are looking to offer unified managed accounts. Eleven percent of banks surveyed in May by Dover Financial Research of Boston said they were offering them and 67% said they were developing or planning to develop a platform within the next 12 months.
Bank of America launched its unified managed account platform, Portfolio Strategies Managed, in early November.
Mr. Smurl said to stand out in a crowding field, Compass provides the overlay management for the unified managed account in-house. Most banks, including Bank of America, use third-party providers, such as Parametric Portfolio Associates of Seattle, to handle the overlay management.
Mr. Smurl said Compass did not want to eliminate people in its trust department that had managed products certain trust services for the company in the past, so they are now handling the overlay management.
"This is a function that we felt was very important and, rather than outsourcing, we made it a key value-added feature for Compass," he said.
"Buying the technology and retraining our people to be overlay managers was more cost-efficient for us than getting a third party to do it," Mr. Smurl said. "It just made sense for us."
He said he is confident the unified managed account platform will continue to drive growth at Compass and other banks.
"This is a growing portion of the pie for every bank," he said. "This is where everyone's focus is."
Rus Prince, a high-net-worth analyst at Prince & Associates, a consulting firm in Shelton, Conn., said unified managed accounts are a good product, but banks must hire the right people to accumulate assets with them.
He said small banks that commit the right resources could bring in assets with unified managed accounts, but on a much smaller scale.
"This is like any investment product in that it comes down to realistically setting goals and targeting the right customers," Mr. Prince said. "Small and midsized banks can attract assets with this product."
