Serving high-net-worth advisers and managed account providers, State Street Corp.'s wealth manager services unit says it hopes to gain share by attacking the market from the top and nearer the bottom as an outsourcing trend gains momentum worldwide.
The unit of the Boston banking company offers intermediaries with a high-net-worth strategy a platform of back-office services such as accounting, custody services, customized reports, Web site management, and performance data. It also offers managed account providers, whose customers are generally less wealthy, accounting, performance measurement, portfolio administration, trade support, and investor reporting services.
Anne Tangen, an executive vice president and the head of wealth manager services, said outsourcing is gaining momentum because financial services companies are under pressure. She said her unit has a lot of opportunities in the pipeline.
"There is a demand in the marketplace for the type of services that we can offer to investors because investors want the level of service that institutional customers receive," Ms. Tangen said.
She added, "A lot of people are competing for a customer's wallet share, and they are using our services to gain an edge in the back office. They have a limited amount of money to spend, and rather than build their own services they are outsourcing."
Ms. Tangen said the wealth manager services unit has grown rapidly since opening in 2001 with $50 billion of assets under administration. It now administers $150 billion for 75 clients. She said the unit expects more growth but continues to be selective about taking on clients.
An intermediary that wants to outsource private-client services must have customers with at least $5 million of assets, she said. "This cannot be a retail offering," she added. "We are geared for private-client outsourcing. … We have to make sure that we stay above that line and our clients stay in the high-net-worth market."
The unit stays in close touch with customers to make sure of this, said Meg McGrory Kelleher, a senior vice president and the head of global business development and relationship management in the unit.
"We have to make sure that they fit our model," she said. "If their strategy changes dramatically, we'll be back at the table to talk about it."
Banks have provided and used outsourcing services for years as an alternative to buying or building specific capabilities. Fourth-quarter data from Technology Partners International Inc. showed that last year was the best for outsourcing of the past five. The global outsourcing industry accumulated $72 billion of revenue in 2004, up 1.1% from 2003 and 35.6% since 2001. About 26% of the 2004 revenue was from financial services outsourcing.
"To handle all of the back-office stuff that we do, a company would have to take on a lot more space and do a great deal of hiring," Ms. Kelleher said. "We are seeing explosive growth in outsourcing."
Ms. Tangen said, "The trend is, people want to focus on their core competencies. They are deciding what they want to be and are more willing to outsource the other portions of their business."
This trend has created "the perfect storm" for companies like State Street that sell outsourcing services, she said.
"Markets were exploding … and people saw the wealth industry and the market opportunity," she said. "They wanted to get their share of wallet. … Customers need us; they need these services. Customers need scalability and global reach."
She added, "Now, every firm is looking at what they have. In a down market [intermediaries] have the same costs and lower fees, and clients want [them] to offer the same services [for] less money."
The "next wave" is to outsource services to managed account providers, Ms. Tangen said. The managed account industry has grown rapidly in recent years, and more banks want to offer a "best of breed" approach to customers.
Ms. Tangen called this a huge opportunity.
"The managed account business has really picked up over the last six to nine months," she said. "It is a small part of our business right now, but we expect it will grow rapidly." She said she was at a conference recently where only 11 companies out of 200 said they were outsourcing managed account services.
"We want to gear up for growth," she said. "I don't know that it'll outpace private-client outsourcing. We'd need a lot of managed account relationships to balance one private-client relationship."
For private-client outsourcing, Ms. Tangen said, the wealth manager services unit has developed share on the West Coast, in the Midwest, and on the East Coast, and it has two clients in the United Kingdom. She said the company will grow by being cross-sold to State Street's existing customer base.
"We want to make sure our strategy mirrors where our customers want to go," she said. "I think we will see more growth in the U.S. and in the U.K. We are going to leverage what we have built."
