Bank distribution of retirement plans is still in its infancy, but two top financial companies say they hope that joining forces will help stimulate sales to small businesses.
SunTrust Banks Inc. of Atlanta has expanded its retirement plan offerings through a deal with Nationwide Financial Services Inc. that combines the latter's Best of America Retirement Resource program with SunTrust's proprietary mutual funds.
The deal gives the banking company the "ability to sell a 401(k) plan that's co-branded with SunTrust and that has a good representation of our proprietary STI Classic Funds," said Peter Bielan, president of SunTrust Securities Inc., the broker-dealer arm of $104.7 billion-asset SunTrust.
In addition, he said, "it gives our brokerage unit the ability" to completely serve "the clients' investment needs."
Columbus, Ohio-based Nationwide and SunTrust Securities said Thursday that they have formed a partnership to develop, market, and service retirement plans - primarily 401(k) plans - for SunTrust's small and midsize commercial clients.
The program targets companies that are developing retirement plans or those whose existing plans have $2 million or less of assets.
Clients with larger plans are handled by another unit, SunTrust Retirement Services, Mr. Bielan said.
The small-business retirement program includes a menu of 45 funds from a variety of money managers, including 10 from the STI Classic Funds, SunTrust's family.
STI Classic Funds are managed by Trustco Capital Management, the SunTrust money management unit that was formed when the banking company reorganized its investment management operations into one group in June 2000.
The two companies have also started a co-branded Nationwide-SunTrust Web site to supply information about the offerings.
Focusing on small businesses is a key part of the partnership, according to Matt Riebel, president of Nationwide Financial Institution Distributors Agency Inc., the division of the insurer that offers investment products to banks.
"Our niche is the small-plan market," Mr. Riebel said, and banks generally have strong relationships with their small-business customers that can help them cross-sell additional products like retirement plans.
For SunTrust, this alliance fills a need, since the brokerage unit had not previously had an appropriate product for small-business customers, Mr. Bielan said.
"We have a lot of clients that have plans that are in the $1 million to $2 million to $3 million range; we do a lot of commercial business with clients of that size," Mr. Bielan said, but previously, the company was unable to offer retirement plans to those customers.
The broker-dealer unit expects to attract customers in two ways. First, he said, it wants to be able to sell the plans to individual investment customers who also are small-business owners. And second, customers could be referred from the commercial banking unit, which works with many small-business clients, he said.
Already, Mr. Bielan said, the companies have been encouraging clients who have 401(k) plans in the appropriate size range to switch into the Nationwide-SunTrust program. Now that the agreement has been formally begun, he said, SunTrust will seek out customers who are just starting up retirement plans.
The inclusion of SunTrust's fund family in the 401(k) offerings also gives that business a boost. Including the STI funds "was one of the core criteria that we had in place when we were looking for partners for this product," Mr. Bielan said. "It gives our sales force the ability to sell our proprietary funds both outside of this program and now inside of the 401(k)."
Mr. Riebel said, "A lot of times bank customers don't have that awareness that a bank has its own fund complex." Including the funds in the retirement plans gives the banking company another opportunity to expose customers to the funds.
In general, Mr. Riebel said, banks are in a great position to sell retirement plans. "The development of the pension business with bank distribution is just really getting started," he said. "The opportunity is tremendous."
Nationwide already sells pensions through a few banks, he said, and expects to get $350 million to $500 million of sales through this channel in 2002.
Mr. Bielan and Mr. Riebel did not disclose a sales goal for the Nationwide-SunTrust program.
The SunTrust deal is the first of its kind - with a banking company's mutual funds as a major component of the program - but Mr. Riebel said Nationwide is looking for similar arrangements with other banks.
He predicted that new deals will be announced within months.
Geoffrey Bobroff, president of Bobroff Consulting Inc. in East Greenwich, R.I., said that working with Nationwide lets SunTrust offer an open architecture plan that has a variety of fund families - something many small employers want but few banks offer.
In addition, "the Nationwide product is a very robust product," Mr. Bobroff said, and the small-business customers being targeted are the insurer's "sweet spot" in that market.
But how much money goes into the STI family will depend on the program's cost structure, Mr. Bobroff said, and which fund families each employer chooses to include in its plan. Competing among 45 portfolios, the STI funds are not guaranteed a huge share of investments, he said.
