Banks bridled in 1970 when Reserve Funds, a New York cash management firm, launched the first money market fund.
“We weren’t making a lot of friends with banks back then,” said Bruce Bent 2d, the company’s vice chairman, who is also the president and son of the firm’s founder and chairman. “With our money funds, we were competing with them for [client] assets.”
Thirty-six years later, the company has executed a 180-degree shift, Mr. Bent said, from competing against banks to working with them as an important distribution channel.
“Banks are one of the most interesting channels now,” he said. “There are so many opportunities … and so many ways for us to work through banks to develop assets.”
Since Reserve Funds — which renamed itself “Reserve” at the beginning of the year in an effort to appeal to banks with more than just money market portfolios — began forming partnerships with banks in 1997 it has established 100 such relationships and had amassed $1.7 billion of assets under management in the channel through Nov. 15. The company’s total at that date was $42.2 billion.
Mr. Bent said he expects assets under management in the bank channel to reach $5 billion by yearend. “We have a solid foot in the door with banks, but we have just begun to penetrate the market,” he said.
All of Reserve’s assets in the bank channel are in its Cash Sweep product. The product, which is popular with commercial customers, sweeps uninvested cash into an investment fund nightly. “To keep clients, especially commercial clients, happy, you have to sweep their assets to a money fund so it can gather more interest,” Mr. Bent said.
Reserve’s sweet spot is with banks that have $5 billion or less of assets and lack a proprietary sweep account, he said, adding, “I believe we can expand to reach 550 banks that fit into our sweet spot where we can add value.”
The company added six banking relationships on Jan. 23. “As we gain more brand definition in the banking channel and our sales and marketing” continue to advance, “over time, more people are moving to us,” he said.
Analysts said banks are becoming ever more receptive to outsourcing.
“Banks just don’t view everyone and everything as competition anymore,” said Burton Greenwald, an analyst at BJ Greenwald Associates in Philadelphia. “For the outsourcers, they can gain access to the customer and potentially cross-sell other products and services.”
Mr. Bent, however, said Reserve will not aggressively cross-sell, though banks are a crucial distribution channel. He said he expects the company to have just short of $60 billion under management by yearend and $85 billion by the end of 2007.
“We want to give our customers what they need; we don’t want to force products at them,” he said. “That approach is a waste of time. It is like walking into a tailor and he starts pulling everything off the rack to sell you something.”
Reserve wants to take a more consultative approach, he said, meeting regularly with focus groups, clients, and prospects in the banking community to find out what they need.
“We feel this is the best way to develop better long-term relationships,” he said. “We want to get a client for life, and if you cram things down their throats, that is a relationship that doesn’t last. … We rarely lose a client, because we are answering their demands not pushing products at them.”
Mr. Bent said Reserve would fuel growth by adding bank relationships and broadening its products and services.
“We want to satisfy the needs of the banks that work with us,” he said. “This is not a cross-selling mission. Our Cash Sweep product is not a lead-in to sell more products. Our banks know that once they establish a Cash Sweep arrangement with us, they aren’t going to be visited by a lot of wholesalers looking to push other products.”
