U.S. Bancorp Broadens Its Open Architecture
October 2, 2006
U.S. Bancorp's private-client group has started a nonproprietary separately managed account platform in an effort to bolster the options available to its customers.
Londa Dewey, the president of the Minneapolis banking company's private-client group, said it has offered proprietary managed accounts through its FAF Advisors unit for years but that growing customer demand for open architecture products had made introducing the nonproprietary platform a top priority.
"All of our product development is client-driven," she said, "and though our clients are satisfied with our proprietary money management with our mutual funds and our separately managed accounts, recently they have been asking us to make more third-party products available. So we took a step back and began to look for ways to complement what we do with proprietary investment products, and now we offer a menu of third-party products."
Dewey said U.S Bancorp, which has $56 billion of assets under management, allied itself with Prima Capital of Denver to create a platform of a "small and highly selective" group of third-party independent money managers that are typically available only to very large individual and institutional investors.
"We didn't just want to release everything to everybody," she said. "We wanted to offer a group of products that are complementary to ours."
Prima Capital develops and maintains the platform and monitors the nonproprietary managers. Dewey said U.S. Bancorp began testing the open architecture platform in March and released it to its customers in May.
In the past five months, she said, the platform has drawn assets. "Primarily, these are assets we didn't manage previously," she said. "This platform is helping us get new clients. This is not a stand-alone product. We expect flows to continue to be strong in the future for this and our proprietary product. We believe we have built a competitive product that will draw a lot of interest in the marketplace."
Analysts said U.S. Bancorp has arrived a bit late to the open architecture game. Large companies like Bank of America have offered open architecture managed account platforms for several years.
"Banks like U.S. Bancorp have to play some catch-up here," said Burton J. Greenwald, president of B.J. Greenwald Associates in Philadelphia. "Third-party products have to be in the mix in order to compete."
Dewey said U.S. Bancorp began offering third-party mutual funds through its private client group a couple of years ago. It has tried to develop a platform that "does not cannibalize our proprietary business and also helps us draw more outside assets," she said.
"We have watched carefully what has happened in this bank investment environment," she said, "and because we had such success with proprietary management, we didn't feel the need to jump in. But once we had requests from our clients for more third-party money management, we knew it was important to get in and develop a product that would be competitive."
Geoffrey Bobroff, president of Bobroff Consulting in East Greenwich, R.I., said many banks have been behind the curve in a managed account arena still dominated by the wirehouses. Banks' share of managed account assets declined by one percentage point in the second quarter, to 7.8%, even as the asset total in the product grew 5.8% overall, to $773.8 billion, according to the Money Management Institute of Washington.
Last year, the institute released a survey by Dover Financial Research of Boston, predicting that banks would double their share of this market by 2010. Wirehouses have continued to hold a 77% share.
"You really have to step back and see if U.S. Bancorp is really late to this game," Bobroff said, "or perhaps if they just now realize that this is the time to do this. It is hard to be late to the game when a lot of banks are still working on offering third-party products."
Dewey said she is confident that U.S. Bancorp has developed a competitive product.
"This product allows our clients to consolidate their assets with us while still investing with a diverse mix of asset managers," she said. "This is a great combination because it offers a simpler solution for our clients. They get multiple managers through one advisor."
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