Contango Capital Advisors Inc., Zions Bancorp.'s wealth management arm, has announced plans to begin outsourcing its investment platform to other companies, potentially including some small banks.
The Berkeley, Calif., company said Tuesday that it had agreed with Rainier Group Investment Advisory LLC to give it access to Contango's investment platform. Rainier Group in Bellevue, Wash., is the first outside company to use Contango's platform, which includes Web-enabled technology to share and analyze financial data, advanced reporting and analysis tools, and access to financial products and services.
George Feiger, the chief executive officer of the Zions unit, said it would not outsource to large banks but has had discussions with organizations including a small bank and some small trust companies.
"We would not outsource our investment strategies to one of Zions' competitors," he said, "but those are large entities with their own in-house capabilities. I don't think Wells Fargo or Bank of America will come knocking on our door, but I think small community banks that offer asset management could have interest and could benefit from this. I would imagine there may be some interesting opportunities with banks, but we don't want to create conflict for Zions."
Probably "several hundred, if not several thousand," advisory firms could have interest in this platform, Mr. Feiger said. "In principle this could be a substantial market," he said.
Rainier Group Investment Advisory, a unit of Rainier Pacific Financial Group Inc., is an adviser that specializes in business transition planning. Mr. Feiger said Contango began working with Rainier as it dealt with wealthy business owners. The two companies created a strong working relationship, he said, and realized that the Contango platform could benefit Rainier.
"A lot of firms are not interested in building their own operational platform," he said. "The alternative is outsourcing."
Norman E. Bell, Rainier's president, said his company decided to use Contango's platform because it wanted access to alternative investments without having to build its own infrastructure.
"Wealth management clients today require a level of sophistication far beyond that of just a decade ago," he said, "and this new relationship with Contango lets us continue moving forward as a leader in this market."
Analysts said banks are slowly growing more comfortable with outsourcing certain segments of their business expertise to noncompeting banks.
In January Commerce Bancorp Inc. in Cherry Hill, N.J., bought eMoney Advisor Inc., a Conshohocken, Pa., online wealth management company that enabled Commerce to begin selectively outsourcing a "virtual private banker" tool to other banks. David Flaherty, Commerce's vice president of corporate communications, said at the time it was possible that Commerce would outsource other products and services.
Geoffrey Bobroff, an analyst at Bobroff Consulting in East Greenwich, R.I., said outsourcing - even offering services selectively to competitors - is becoming ever more acceptable to companies.
"Today, earnings growth is a challenge, and if you can still maintain your competitive edge and the customer relationship, there is no harm in farming out something to a competitor," Mr. Bobroff said. The key is selectivity, he said.
"Maybe a bank won't outsource to the bank up the street, but for the most part, no one has a problem doing it for a bank that is across the state or perhaps is in another state," he said.
"The fixed costs of being in this business are rising rapidly," Mr. Feiger said. "Not just technical costs are rising but the bigger fixed costs in the analytical process. The amount of due diligence and analytical work is staggering. All of this stuff is getting more and more complex. Outsourcing rather than building your own platform makes a lot of sense."
Zions, a $36.8 billion-asset banking company in Salt Lake City, started Contango in 2004 as its asset management unit for wealthy customers. Since then, Mr. Feiger said, Contango has been developing assets quickly by mining Zions' network of affiliates. It never set out to become an outsourcer, he said.
"We were trying to assemble a private-client wealth management business for Zions," he said. "But in the course of doing business, we had to create a new operating platform. … We discovered that this platform was scaleable, and we realized we can provide a great deal of value to independent advisory firms that can't afford to build their own platform."
"This is not a core business," he said, "but it is relatively easy for us to do. It could prove to be an interesting line of business that could generate some revenue for us down the line."
