Federated Investors Inc. has boosted its equity offerings and is pitching its services to bank trust departments in order to get them to diversify their product offerings.
Though bank brokers have been steadily diversifying the number and types of products they sell, many trust departments have stuck to proprietary mutual funds and relied exclusively on in-house advisers, said Timothy Pillion, senior vice president, bank marketing and sales at the Pittsburgh mutual fund company.
Federated's goal is to be able both to offer the wide array of services that trust departments will need and to help design sales strategies for all investment product departments in a bank, said Mr. Pillion. Federated has had "great success as clients have rethought how they are delivering investment products," he said.
Once seen exclusively as a money market fund provider, Federated moved to expand its offerings in the early 1990s. It began to push equity portfolios more aggressively after losses in its bond funds in the middle of the decade. This year it bought 11 mutual funds from Investment Advisers Inc., with $355 million of domestic equities and $31 million of fixed-income and money market funds.
The financial industry's diversification has pressed many banks to consider both selling other companies' products and offering ancillary services, said Paul Kampner, president of TMark Associates Ltd. in Chicago.
Increasingly, banks are outsourcing both education and investment advice, and trust departments are under more pressure to sell at least some outside products, though most do so reluctantly, Mr. Kampner said. At a typical bank that has proprietary funds, 70% to 80% of total sales will be of outside funds, said Kenneth Kehrer, president of Kenneth Kehrer Associates of Princeton, N.J., whereas most trust companies still sell their own products.
Trust departments' retirement services in particular are becoming outdated in terms of product offerings, said Mr. Pillion. Retirement services are valuable even for wealthy, sophisticated investors because "the more money an individual has the more likely they're going to seek some direction," Mr. Pillion said.
Despite consolidation in financial services, opportunities abound for those catering to trust departments, said Mr. Pillion. Independent trust companies - often started by lawyers or former investment advisers - now number in the thousands nationwide, he added.
Federated's sales through bank brokers and trust departments continue to grow. It expects sales of roughly $8 billion through banks this year, up from $5 billion in 1999, said Mr. Pillion.
The company also continues to alter its asset mix from fixed-income to equity. As of June 30, equities made up 17.9% of Federated's assets under management, up from 15.5% the year before.
Growth in equity funds' portion of the Federated pie came at the expense of fixed-income funds, which now make up 11.7% of the company's total assets, down from 14.3% the year before, according to Federated. Its largest asset class is still money market funds, which with liquidity management funds totaled 66.3% of the company's total at the end of the second quarter.