SEI Investments Inc., which has done brisk business selling mutual fund wrap products through fee-based advisers, aims to parlay that success in the bank channel.According to Cerulli Associates Inc. of Boston, SEI outpaced Citigroup Inc.'s Salomon Smith Barney unit last year as the largest provider of wrap accounts - investment programs in which investors pay an annual fee to an adviser for managing a customized portfolio of mutual funds.
But the Oaks, Pa., company has some wood to chop. Only $2.8 billion of its $65 billion of assets under management on March 31 came from sales through banks, said Robert C. Aller, senior vice president of SEI's Investment Advisory Group, which distributes products through intermediaries. About $21 billion of its total managed assets came through advisers, he said.
Only about six of the 250 banks that sell SEI's mutual funds offer the company's wrap accounts, said Lee Dolan, senior vice president in charge of distribution.
SEI is hoping to change that. Mr. Dolan said he expects to make deals with several bank brokerages within two weeks, to have 25 new clients by yearend, and to have added 75 by the end of 2001.
Mr. Dolan said those targets are realistic given SEI's success with fee-based advisers. "We have a lot more credibility today," he said.
The company's decision this year to consolidate its wholesaler coverage could help boost the wrap business through banks.
SEI increased to 27 the number of wholesalers marketing wrap accounts through banks. Previously 22 wholesalers were dedicated to selling SEI's investment products through independent advisers, whereas only five covered banks, Mr. Aller said.
Observers said SEI has its work cut out, as wrap accounts have been slower to catch on at bank brokerages than at wire houses and fee-based advisers.
Unlike mutual funds or stocks, which generate a quicker sales turnaround, wrap products need several years to be profitable. Because many bank brokerages cannot afford to pay brokers up front for future gains, there is often little incentive for brokers to push the products, observers say.
Wrap accounts represented 0.9% of an average bank's investment services revenue last year, according to Kenneth Kehrer Associates' yearly study. In 1998 they accounted for 0.5% of investment services revenue overall, the study said. Some banks prefer to go it alone, rather than offer the products through a third-party provider such as SEI.
Bank One Corp. of Chicago, for instance, rolled out a wrap program for trust and private banking clients in mid-1997 and plans to make the products available through its retail arm on May 1, said Michael J. Reed, president of Banc One Securities Corp., the Columbus, Ohio, brokerage arm.
"We had complete control of what went in the product, so it added tremendous amounts of flexibility for us," he said.
William K. Curtis, the chief operating officer of Marshall & Illsley Corp.'s brokerage arm, said M&I Brokerage Services Inc. is considering offering a wrap product but would do so through M&I Investment Management Corp., an affiliated investment adviser.
"Why should I go and partner with a third party when I don't need to?" Mr. Curtis said.
Nonetheless, offering wrap accounts through third parties such as SEI has advantages, said William Dent, director of asset advisory services at McDonald Investments, the brokerage arm of Cleveland-based KeyCorp, which sells proprietary wrap products, as well as those from SEI.
The benefits include high profit margins, good marketing, and proprietary research by SEI, Mr. Dent said in an e-mail.
Outsourcing also frees bank employees to concentrate on other projects, said Richard Mansfield, product manager of Summit Bancorp's proprietary fund family. Summit of Princeton, N.J., plans to offer SEI's wrap product by the end of the second quarter.