Prudential Investments of Newark, N.J., which has been offering managed account services to midsize banks since mid-2004, will start going after smaller banks next year.
One reason is the limited number of midsize banks — those with $10 billion to $80 billion of assets — said Kevin Osborn, the director of Prudential’s managed account consulting group.
“As we have gotten more nimble and begun to really understand the needs of the banking community, we are beginning to look at offering a subset of services to smaller banks,” Mr. Osborn said Tuesday.
Prudential will be offered access to a diversified set of money managers, education for bankers and wealth managers about managed account services, and the ability to profile and monitor performance, he said.
Though only one relationship with a bank, PNC, has been announced, Mr. Osborn said that Prudential is confident it can establish them with three or four midsize banks a year — but that there are only 40 to 60 such banks.
The idea of going down market arose in March, said Peter M. Green, who was hired in June of last year as the group’s business development chief and a senior vice president.
In March, Mr. Green said, Prudential sponsored a “power breakfast” at the American Bankers Association conference in Orlando to promote its managed accounts services. Most of the 150 people who attended were from smaller regional and community banks, he said.
“We realized at that point that there was a huge demand for what we have from the smaller-bank marketplace,” he said.
Mr. Osborn said Prudential will offer banks with less than $10 billion of assets only the “core elements” of the menu offered to bigger ones, private banks, and trust companies. Larger banks are offered anything from a full platform, where Prudential supplies all the managed account products and services, to just a few money managers to provide more options for existing operations.
PNC Advisors, the wealth management arm of PNC Financial Services Group Inc. of Pittsburgh, took a middle route. Under an arrangement announced in March 2004, Prudential provides PNC’s clients with access to 20 account managers, and Prudential’s products are integrated with PNC’s proprietary and nonproprietary products.
(Prudential is also offering the wide menu to private banks and trust companies. It has established relationships with a dozen companies serving independent broker-dealers that want to provide managed accounts to wealthy individuals and institutional clients.)
Some investment industry consultants expressed doubt that the Prudential Financial Inc. unit could profitably take its managed account services down market.
Burton Greenwald, a Philadelphia analyst with BJ Greenwald & Associates, said smaller banks are interested in fee-based services but would have a tough time succeeding with managed accounts.
“Other turnkey asset management providers have stuck to large and midsize banks when it comes to providing these services,” Mr. Greenwald said. “Smaller banks don’t have the customer base for this to be profitable.”
But Mr. Osborn said Prudential’s size and national presence would do the trick.
“For example, a smaller bank in Chicago, on its own, we probably wouldn’t be able to do all of this for,” Mr. Osborn said. “But we are already … providing these services on a private-label basis for another, large bank in the Chicago area. That is why we can do this and this makes economic sense to us.”
Statistics indicate that bank interest in managed accounts is growing. Over all, assets in managed accounts totaled $620 billion at midyear, 17% more than a year earlier, according to the Money Management Institute, the industry’s trade group. Banks managed 7% of the new total, up from 6.1% at the end of 2003 and 3.8% at the end of 2002, said Chris Cosentino, a spokesman.
Though wire houses dominate, managing 77% of the assets, banks continue to build share, Mr. Cosentino said.
“More assets are moving toward banks and more people are interested in doing business with banks,” he said. “Managed accounts are ideally suited for banks to add another level of service.”
