Last September, industry analysts forecast that banks would double their separately managed account market share by 2010, but a year later, the head of an industry group is less positive.
Leonard Reinhart, the chairman of the Money Management Institute, a Washington trade group that tracks separately managed account sales, said banks will continue to gather assets in the product but he does not expect them to pull share from wire houses and broker-dealers.
Banks' share declined one percentage point during the second quarter, to 7.8%, while assets in separately managed accounts grew 5.8% overall, to $773.8 billion, according to the institute. Last year, the institute released a survey by Dover Financial Research in Boston, predicting that banks would double their share of this market by 2010.
Mr. Reinhart, who is also the chairman and chief executive officer of Lockwood Advisors, the separately managed account unit at Bank of New York Co., called that expectation "ambitious."
"To gain market share, banks are going to have to gain on everyone else," he said. "Banks could quadruple assets and still not gain share if everyone else is growing too. Banks could double their assets by 2010, but will they double market share? I'd say 'no' because everyone else is running really hard too."
"I'd expect they will grow at a fast rate," he added, "but to double share will be tough."
Five major wire houses - Citi Global Wealth Management, Merrill Lynch & Co., Morgan Stanley, UBS Financial Services, and Wachovia Securities - control 79% of the market, according to the Money Management Institute. These companies continue to dominate because they have longer track records and more people selling separately managed accounts, Mr. Reinhart said.
"As we get into a reasonably good stock market, the numbers are going to pop quicker for firms with a larger base of assets," he said. "Banks are getting excited about SMAs, but they just don't have as many soldiers on the ground to sell these products. So when the market pops, their numbers will pop more slowly."
Dan McNamara, a managing director in Bank of America Corp.'s consulting services group, however, said he is confident that banks will continue to gather share.
"I don't know if it is going to reach 10%, 15%, or 20%," he said, "and I understand the struggles that banks have had in this space, but growth is going to continue. Our clients clearly have sent us the message that they want choice and they are interested in separately managed accounts."
Difficult market conditions dampened asset management growth in the second quarter, he said, but steady growth in the number of new accounts is "a strong indication from advisers and clients that we can still grow at double-digit rates."
Bank of America increased its managed account assets by 54%, to $20 billion, from June 30 last year through this June. Mr. McNamara said he expects this kind of growth to persist.
Mr. Reinhart said it is not impossible for some companies, like Bank of America and Bank of New York, to expand their assets under management. Lockwood Advisors, which is based in Malvern, Pa., has increased its assets under management by 25.7%, to $22 billion, since Dec. 31, he said.
Unlike wire houses like Merrill Lynch and Smith Barney that are "pretty well saturated," he said, banks can still generate strong organic growth by selling separately managed accounts to their existing customers.
"In the bank marketplace, executives have just not given out enough bullets yet," he said. "So because of this, their growth has been slower in a fast-growth period, but banks will grow."
Some banks are finding it difficult to integrate separately managed accounts into their existing platforms, Mr. Reinhart said. "Some banks are starting to integrate their trust and SMA platforms, but it is hard," he said. "It is hard to integrate systems."
Mr. McNamara said some banks have been slowed because it is a difficult cultural shift to move from selling proprietary products to offering fee-based separately managed accounts.
"Banks are historically skewed to proprietary investment management," he said. "A cultural shift has to occur in order to bring an open architecture platform in and balance that with an existing proprietary platform. … Banks that haven't taken that cultural leap are struggling."
Changing platforms also requires an "enormous" financial commitment, Mr. McNamara said.
"There is a significant cost to build up their business and to achieve significant scale in the first few years," he said. "That is a real challenge."
Over time, Mr. McNamara said, banks would gather share in managed accounts.
"The advantage that we and other traditional banks have is the relationship we have with our clients," he said. "My view is that the banking relationship is stronger than any wire house relationship, and these deep relationships give us the advantage long-term."
"I think we haven't even touched the tip of the iceberg," he added, "in terms of distributing this product within our organization, within our footprint, and within our client base."
