Sales of unified managed accounts are increasing at banks as more institutions try to use the product to move from asset manager to wealth adviser.
Charles “Chip” Roame, the managing principal at Tiburon Advisors in Belvedere, Calif., said that, though unified managed account data are still nebulous because the product’s structure leads to “double counting” of assets, banks are well-positioned for success on this platform.
“I see that banks could be the leader in this space,” Mr. Roame said. “First, in their trust department they have a developed money management culture, and they have bought firms and have third-party distribution capabilities on both sides of the coin. Banks understand both proprietary and external asset management.”
The unified managed account is still in its infancy. David Haywood, an analyst at Financial Research Corp. in Boston, said it does not break out data on unified managed accounts because the product is still relatively new.
The product, which links a collection of investment products on one platform, including everything from separately managed accounts to mutual funds, first hit the market five years ago.
Banking companies like Wachovia Corp., Citigroup Inc., and AmSouth Bancorp and bank affiliates like KeyCorp’s McDonald Financial and PNC Financial Services’ PFPC Worldwide Inc. have all started unified managed account platforms.
Wachovia’s Diversified Managed Allocations was started in December 2002 and by Aug. 31, 2003, had accumulated $500 million of managed assets. By July 31 this year, it had $2.57 billion.
Lee Chertavian, the chairman and chief executive officer of Placemark Investments, a Wellesley, Mass., company that distributes unified managed accounts, said he expects banks to double their market share in this product within five years.
Banks, family offices, and independent wealth managers collectively manage 30% of the assets held in unified managed accounts, Mr. Chertavian said, and brokerage firms manage the other 70%. He said he expects within five years brokers will manage 40% of these assets, banks another 40%, and family offices and independent wealth managers about 20%.
“I think banks are realizing that to serve their customers better they have to move past the mode of just managing assets,” Mr. Chertavian said. “To compete with the brokerage firms, banks have to have wealth management options.”
Mr. Chertavian said Placemark got its first bank relationship last summer when it began offering its unified managed account platform to customers of J.P. Morgan Chase & Co. through FundQuest Inc., a Boston managed account provider. Placemark also has relationships with companies like RBC Dain Rauscher, Piper Jaffray, and McDonald Financial, he said.
Placemark will announce a relationship with a multinational bank this month or next, he said, and has five other banks “in the pipeline.”
“If you look at the last couple of years” of investment product sales, Mr. Chertavian said, “brokers have grown, asset managers have grown, but banks have remained flat. They are losing clients, and they are losing share because customers don’t just want to be sold product. Customers don’t just want the same old same old.”
Analysts said unified managed accounts are gaining popularity quite simply because they are simpler for customers, advisers, and distributors. Kevin Daniels, a Boston analyst, said unified managed accounts enable an adviser to put all a customer’s holdings in one account. This means the customer can maintain diversification and make adjustments without shuffling among portfolios.
“The unified managed account will succeed for the same reason other products have failed — diversification,” Mr. Daniels said. “The unified managed account allows investors to see all of their investments, adjust all of their investments, and live with all of their investments in one platform. Advisers can now move from product pushers to wealth managers with this platform.”
Bill Deakyne, a vice president and the director of product management at Franklin Templeton, a big mutual fund company, said the banking industry would encounter growing pains in the transition to unified managed accounts. Franklin Templeton has put its managed account product on several unified managed account platforms and is in talks to join others, but he said real movement to the new platform would take time.
Unified managed accounts can be a strong platform because of their ability to link products in one platform, he said, but banks must learn how to walk before they can run.
“The unified managed account is a product whose time has come, but it is very difficult for banks, with their other investment products built in silos, to get all of their products to work under one unified managed account wrapper,” said Mr. Deakyne, the product executive at the San Mateo, Calif., unit of Franklin Resources Inc.
“Banks are still a little more silo’ed than the wire houses,” he said. “They are still learning. They are still converting clients and finding prospects. They are learning managed accounts before they dive into unified managed accounts.”
Mr. Chertavian said he knows the transition will be slow. He said he expects it could take five years before unified managed accounts are a “sizable piece of business” for banks and 10 years before they are on par with other investment products.
He said the biggest hurdle for banks is technology and making a new unified managed account platform assimilate old systems. Placemark offers a desktop interface that lets advisers offer the new product simply, he said, and this simplicity is drawing customers, including banks.
“Banks are growing increasingly interested in this product,” he said. “Banks were 10% to 20% of our prospect list a year ago, and now they are closer to a third to half of our active prospects.”
“It is a matter of banks slowly understanding what the benefits are of unified managed accounts,” he added. “This is a matter of being evolutionary rather than revolutionary.”
