Comerica Inc.’s retirement services unit says it increased its sales fourfold in 14 months after shifting to an open-architecture platform.
“Historically, the bank has manufactured and distributed just its proprietary products, but late in 2005 we introduced a consultative model that allowed us to bring in multiple solutions, not just products, to our clients,” said Bill Feldmaier, who was hired in August 2005 as vice president and national sales director for the Detroit banking company’s retirement services group.
Comerica is managing 62 401(k) plans, versus 15 before the change, Mr. Feldmaier said. “We are now a service provider rather than just a product provider. We can now allow retirement consultants to provide the utmost flexibility.”
Despite the large increase in 401(k) plans managed, Comerica’s assets under management rose just 14.4%, to $9.27 billion, last year.
Many banks have moved to an open-architecture platform or are in the process of doing so. A report by Dover Financial Research of Boston said 69% of banks are using open architecture, 5% sell only proprietary products, and 26% have hybrid platforms with proprietary and nonproprietary components.
Analysts said regulatory scrutiny and the high cost of compliance have driven many financial services companies away from proprietary products. Last month Comerica divested its proprietary investment arm, Munder Capital Management of Birmingham, Mich., in a management-led buyout. Munder was managing $27.1 billion of assets on Sept. 30.
Burton Greenwald, an analyst with BJ Greenwald Associates in Philadelphia, said some banks balk at moving away from proprietary products because of the steady stream of revenue the products generate.
“This is very old thinking,” Mr. Greenwald said. “There are still banks that have stuck to proprietary products, but open architecture is certainly the way to go. Banks think they can push proprietary products through their platform, but this is really an archaic method. Anyone trying to push products that are not best-of-breed is putting themselves at a terrible disadvantage.”
Analysts say many banks fear they would lose proprietary assets under management by going to open architecture. “Basically, you are asking the head of trusts to fire himself. So naturally, it is slow to take hold,” said Geoffrey Bobroff, with Bobroff Consulting in East Greenwich, R.I.
More banks are preparing to use nonproprietary products. Fifty-seven percent of bank wealth management executives surveyed in August by SEI, an asset manager in Oaks, Pa., said their banks offered a mix of proprietary and nonproprietary investment products. Just 8% said their banks sold only proprietary products.
Mr. Feldmaier, a Comerica first vice president and the retirement services group’s director of distribution and strategy, said the revenues generated by manufacturing products are great, but the cost is overwhelming.
“When we are acting as a consultant rather than as a product provider, we are delivering higher margins,” he said.
He said it will be difficult to maintain the growth pace his group has had the past year and a half. “When I set our goals a year ago, I said that we wanted to double, double, double over the next three years. When we quadrupled in the first year, I had to reset. I want to make sure we don’t outgrow our infrastructure.”
He added: “There are no plans to quadruple in 2007, but we do plan to double what we did in 2006. We are shooting for 120 plans.”
One way Mr. Feldmaier hopes to reach that goal is by offering retirement services to Comerica’s business customers.
“We have such a small level of penetration in terms of the companies that we are lending to,” he said. “Most of those companies do use us as their 401(k) provider. This is a huge initiative for us. We can easily double our current book of business if we can get the business bank behind us. The sky is really the limit.”
Comerica will be hard-pressed to double to 240 plans in 2008 on solely organic growth, Mr. Feldmaier said. He said the unit will need to add salespeople in Dallas and San Francisco this year if it is to maintain its current pace over the next two years.
Comerica is the fifth-largest bank-owned provider of retirement services, trailing JPMorgan Chase & Co., Wachovia Corp., Wells Fargo & Co., and UnionBanCal Corp. Mr. Feldmaier said he thinks it can catch UnionBanCal, which is mostly owned by Mitsubishi UFJ Financial Group Inc. and has $13 billion of 401(k) assets under management.
But the other three companies “are in a league of their own,” he said. “Those banks are looking to offer 401(k) services to companies with north of $50 million. There are a lot of businesses in the U.S. with less than $50 million for us to go after.”
