Prudential Investments of Newark, N.J., has broadened the offerings in its managed account platform it has offered to midsize banks since 2004 to develop deeper relationships with them.
Even though the new platform includes unified managed accounts, the Prudential Financial Inc. unit says it is not interested in becoming a turnkey provider.
Kevin Osborn, the president of Prudential Investments’ wealth management solutions group, said that with the enhanced platform, his unit has doubled its banking partners, to eight. He expects to add three or four more banks each year.
The group plans to target banks with between $5 billion and $90 billion of assets under management, Mr. Osborn said in an interview last week. The group’s current roster of clients collectively have $200 billion.
“This is all about gradual evolution,” he said. “There is a recognition among banks that they want to enhance or extend their value proposition by adding products, but they don’t want to change everything they do completely.”
Analysts said Prudential will have an uphill climb, because many banks already have signed on with turnkey asset managers such as Placemark Investments Inc., which is based in Dallas and Wellesley, Mass., and FundQuest Inc., the Boston investment management unit of BNP Paribas SA, to get aboard the unified managed account bandwagon.
Last year Prudential’s group increased its assets under administration 29%, to $70.2 billion.
Unified managed accounts allow an adviser to assemble multiple products — including managed accounts, mutual funds, and exchange-traded funds — on a single platform. Hyped for the past three years as the future of fee-based investing, the accounts caught fire last year as demand grew for an advice-based, open-architecture model.
Peter M. Green, the group’s business development chief and a senior vice president, said in an interview last week that his firm is not trying to compete with companies like FundQuest and Placemark.
“We are not like the typical” turnkey asset management program “that might want 40 or 50 relationships just to sign up banks and put their product on a shelf,” Mr. Green said. “We actually want to be the shelf. We want to create a smaller group of serious, deeper relationships.”
Though banks are adding unified managed accounts and other open-architecture products to their offerings, many remain wary about selling the products, because they do not want to lose the steady revenue stream that proprietary mutual funds generate, Mr. Osborn said.
“Proprietary products do generate more fees than nonproprietary products, but to maintain clients or to get new business, banks need to offer more,” he said. “This is not just about generating revenue from a client on a particular sale. This is about generating stickier relationships. We want to help banks maintain clients and get new clients.”
The platform enhancement is “an opportunity for banks to do business in a broader way than just deciding to move to an open architecture platform today,” Mr. Osborn said. “This is an opportunity to evolve rather than change dramatically.”
Many banks have moved to an open-architecture platform or are in the process of doing so. A report released in the fall 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 that regulatory scrutiny and the high cost of compliance have driven some financial services companies away from proprietary products, while others have added nonproprietary products to their shelves but continue to sell their own products.
W. Christopher Maxwell, a managing partner at Conestoga Capital Advisors LLC, a Rock Hall, Md., wealth management firm, said banks are getting more comfortable diversifying the mix of products on their shelves. Though the bulk of the assets are still in proprietary products, banks are growing more comfortable using third-party advisers for “special asset classes” where the advisers can bring a certain expertise.
“We are getting more and more banks and major advisers using us as a niche adviser on an open platform than they may have a year ago,” Mr. Maxwell said.
Mr. Osborn said banks have acknowledged that they need to change their approach.
“You may lose a little in the short term, but if you gain more clients and retain more assets than you would have by simply pushing your products at them, then you will make more in the long run,” he said. “Banks have the opportunity to become a partner to their clients, and we have the opportunity to become a partner with the bank, rather than just a vendor of managed account services.”
Banks are interested in changing their business strategy if it means they can generate additional revenue, Mr. Osborn said, and they know unified managed accounts will play a role.
“Conceptually, the unified managed account is not new for banks,” he said. “At its root, a unified managed account means taking a total approach to a client’s portfolio, and that is what trust bankers have done for years. The unified managed account is really just the ability to deliver this efficiently with technology in order to bring it down market.”
