CheckFree Corp., the dominant bill-pay provider for banks, has found additional revenue from distributing its managed account platform through banks.
The Atlanta company's investment unit, CheckFree Investment Services, says it has developed significant revenue in the past five years by offering a managed account platform to providers, including banks, that has let them push the product further and further down-market.
Hilary Fiorella, the vice president of marketing at the CheckFree unit, said banks and other financial services companies want to offer managed accounts to customers with as little as $25,000 to invest. The product once was reserved for high-net-worth people with at least $10 million of investable assets.
"Technology and product awareness have driven banks further down-market," she said. "The minimums have come down, and banks are making this product available to more investors. Banks have recognized that they are well-positioned to sell separate accounts."
By peddling the platform to banks, she said, CheckFree Investment Services can develop revenue. The unit had $86.3 million of revenue in the fiscal year that ended June 30. It expects to reach "the high 90's" in revenue this year, she said, and to post 10% to 12% growth annually for five years.
A very large percentage of revenue comes from the bank channel, Ms. Fiorella said. CheckFree Investment Services has relationships with companies like PNC Financial Services Inc., the RBC Dain Rauscher unit of Royal Bank of Canada, Bank of America Corp., Wells Fargo & Co., and Bank of New York Co.
"Banks typically have the best relationship with the end investor," she said. "If they can leverage the end relationship with a good product, they are the natural channel for us to work through. We have to give them a product that makes sense."
Banks have become increasingly interested in offering fee-based products like managed accounts in the past five years. Cerulli & Associates, a Boston research firm, has said that three of the top five managed account providers are banking companies.
Merrill Lynch & Co., the No. 1 provider, had 20.8% of the managed account market at Dec. 31, Cerulli said, with $246.2 billion of assets under management. Citigroup's Smith Barney was No. 2, with a 20.1% market share and $237.9 billion of assets; UBS Financial Services, No. 4, with 8.3% and $97.8 billion; and Wachovia Securities, No. 5, with 6.7% and $79.4 billion.
Analysts pointed out that many banks and providers have been going down-market with managed accounts for years.
EnvestnetPMC Inc., a New York managed account provider, has developed $6.5 billion of assets under management in fee-based products since opening in 1999. It has relationships with banking companies including U.S. Bancorp, Bank of America, and JPMorgan Chase & Co.
EnvestnetPMC began reaching down-market in May 2003 with an offering of managed accounts and mutual fund wrap accounts to banking companies with $1 billion to $2 billion of assets.
GlobalBridge Inc. is a Minneapolis institutional asset manager that has developed a managed account platform for small to midsize banks. The product is intended to let the banks maintain custody of client assets and control of client relationships.
Kevin Daniels, an analyst in Boston, said the competition is stiff and may constitute uncharted waters for a company like CheckFree, which built its reputation as a bill-payment technology provider.
"Technology is critical, but the biggest factor that banks consider is longevity," Mr. Daniels said. "Banks want to know they are outsourcing their technology to a provider who knows what they are doing."
Ms. Fiorella said, however, that CheckFree meets the longevity test because it has offered managed accounts to banks since the mid-1980s. The company managed $340 billion in separate account programs in 1999, she said, and now has $583 billion.
"Banks are realizing that their proprietary products are not as well-received or as successful as they hoped they'd be," she said.
She said she is confident that CheckFree will continue to build revenue by expanding the depth and breadth of its fee-based products. The next step is unified managed accounts, she said, a product that lets a bank "see" and manage both proprietary and nonproprietary products on one platform.
Contrary to received wisdom, Ms. Fiorella said, most banks are not ready for unified managed account platforms just yet. But they are interested in having the ability to at least see all of their customer's assets, she said, even if they are not managing all of them yet.
"The idea of unified managed accounts [is] still a little ahead of the market, but that is where the evolution is going," she said. "Banks are very interested in fee-based services."
