The mutual fund wrap program of PNC Financial Services Group's brokerage arm has multiplied its assets under management in the past two years as bank customers have turned from regulatory and market turmoil to a simpler investment product.
Assets in Capital Directions, PNC Investments' wrap program, have increased 320.4% since the end of 2003 and 137.5% in the 12 months through Sept. 30, to $553 million. Mike Mortensen, the president of the PNC unit, said he would not be surprised to see $2 billion of assets under management in the wrap program within four years.
"We are growing an average of $30 million to $40 million a month, and with movement in the market [out of riskier investment products], I expect solid growth out of it," Mr. Mortensen said. "It is growth that this product has earned. We are not pushing people to sell it. People are coming to us."
Mr. Mortensen said the product's growth has changed the role of the financial consultant from stock picker to adviser.
"There is a sea change that is going on right now," he said. "Financial consultants once did research and tried to manage money. Now clients want professional money management, and the financial consultant is becoming a relationship manager that provides advice and service."
PNC's customers are clamoring for fee-based products and open architecture, he said. The trend toward self-directed brokerage accounts has passed, he added, and customers are more interested in well-allocated products that are automatically rebalanced.
"There has been a lot of negative focus on mutual funds and variable annuities that is driving investors toward mutual fund wrap programs," Mr. Mortensen said. "This is a product that requires annual reviews and a lot of client discussions. This is a product that regulators appreciate."
Data from Cerulli & Associates, a Boston research firm, showed mutual fund wrap programs controlling $235 billion, or 20% of fee-based product assets at Dec. 31.
These programs have grown at a compounded annual rate of 19% since Dec. 31, 2001, and added more than $96 billion through the end of last year, according to Cerulli, despite the fact that other fee-based products - such as managed accounts and unified managed accounts - have grabbed all the headlines.
A mutual fund wrap program is designed to systematically allocate investors' assets across a range of mutual funds. Services can include client profiling, account monitoring, and portfolio rebalancing, the Cerulli firm says. Mr. Mortensen said PNC's wrap program rebalances automatically each quarter and does not charge an up-front sales fee or surrender penalty.
Geoffrey Bobroff, an analyst at Bobroff Consulting in East Greenwich, R.I., said mutual fund wrap programs allow advisers to offer packaged solutions to mass-affluent customers, rather than investment products.
The programs are growing steadily because they offer a wide array of fund options, he said.
"If you look at the 1980s and the early 1990s, customers were buying from fund families, but today a single family is not enough," he said. "Customers want best-of-breed."
PNC Investments offers both proprietary BlackRock funds and nonproprietary mutual funds in its wrap program to customers with $25,000 to $1 million to invest, Mr. Mortensen said.
"What is helping this product grow is, customers have a number of carefully selected third-party funds to choose from," he said. "Investment committees select a variety of products and work with the customer to choose the best funds for each sector. A lot of choice has given this product credibility."
Mr. Mortensen said its wrap program is helping PNC Investments become recognized as "an advisory shop" rather than just a product provider.
"This is really the next step in the evolution of the industry," he said. "When banks got into investments, it was transactional. People came in with money and put it into an investment or an annuity. We want to know the customer better and provide long-term investment advice. This fits extremely well with us developing a more advisory culture."
Mr. Mortensen said the product is helping PNC Investments, which has $17 billion of assets under management, increase wallet share, generate referrals, and create client relationships.
"This product is the cornerstone for our growth," he said. "This is an area where we are really leading the pack. I don't think another bank broker-dealer is having as much success with this kind of product."
Mr. Bobroff, however, said other banking companies, including Wachovia Corp., have also had success with mutual fund wrap platforms.
"All the banks in the country are flirting with this ideas, as are the brokers," he said. "This product gets you out of sales. It is a product that allows advisers to offer solutions instead of selling products."
