September 29, 2003
Curian Capital to Sell SMAs Through Midsize Banks
A small Denver investment adviser that offers managed accounts to the mass affluent says it is ready to announce relationships with three or four small to midsize banks in the next four weeks despite the continued skepticism about selling these products down-market.
Curian Capital, a unit of the London insurer Prudential, has formed alliances with three or four banks, which it declined to name. It will be the first to co-brand its managed account platform. Curian offers its SMAs for a minimum investment of $25,000.
James Vitalie, an executive vice president at Curian, said the firm has been marketing heavily to banks and insurance companies since the company was started six months ago because so-called mass-affluent customers typically are comfortable investing with a bank.
"We want to be able to incorporate a small- to midsize bank's asset management capabilities onto our platform," he said. "Community banks have limited investment management expertise. We can incorporate what they have with what we have and develop a successful program."
Curian now distributes through broker/dealers, including some that distribute through banks. The firm has 130 sales agreements with brokerage firms and registered investment advisers, representing 6,000 sales professionals, up from 90 sales agreements representing 1,600 professionals at the end of June, Vitalie said. Each portfolio includes 10 to 20 style-specific money managers and typically holds positions in up to 500 securities.
Bank executives have said that, in order to achieve effective diversification and asset allocation, people should not invest less than $300,000 in a managed account. Analysts said that properly diversifying small separately managed accounts is difficult.
Lee Chertavian, the chairman and chief executive officer of Placemark Investments, a Wellesley, Mass., investment firm, said banks have their sweet spot with larger clients who rely on their trust operations. He said he has a bank client whose investment minimum is $250,000 for mutual funds and $1 million for managed accounts.
It is very difficult for banks to justify offering a managed account to a customer with less than $100,000 to invest."
Christopher L. Davis, the president of the Money Management Institute, agreed with Chertavian. "At lower levels, investors can be served well by mutual funds," Davis said. "The truly customized services are for the wealthy."
Vitalie disagreed. "The same reason it is good for the wealthy, it is good for someone with less to invest," he said.
Curian can provide the same diversification whether someone invests $25,000 or $2.5 million, Vitalie maintained. It accommodates small accounts by fractionalizing stocks to as little as 1/100,000th of a share.
Since opening in March, Curian has worked aggressively to move broker/dealers and investment advisers into fee-based businesses. It started out with a Fee Advance Program under which it pays advisers annual fees up-front in order to encourage sales.
The firm also has 26 regional consultants working to train bankers and broker/dealers on using the platform. And it offers three online training sessions daily and runs conferences for active advisers and their office employees at Curian headquarters in Denver.
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