Less than a year after being bought by BNP Paribas, FundQuest says its connection with its global banking parent is helping it develop relationships with banks and their trust departments.
"We are going into trust departments, and because we are a well-capitalized institution backed by a major global bank, they are comfortable doing business with us," said Robert Del Col, the Boston wealth management company's president and chief executive officer.
FundQuest is pursuing bank trust departments with $500 million to $5 billion of assets under management, he said. It signed up its first such client, the First Tennessee Bank unit of First Horizon National Corp., last month and expects to announce three more contracts by June 30, he said. Ten other trust companies are in the pipeline, he added, and he expects to initiate eight to 10 trust relationships this year in all.
Trust companies are interested in working with FundQuest, a turnkey wealth management provider, Mr. Del Col said, in order to broaden their array of open architecture products and services.
"Some of these arrangements will be big winners for us" in terms of developing assets under management, he said, "and some won't. It may take two to three years with these companies to ratchet up new business with these relationships."
Since being bought by BNP Paribas' U.S. asset management arm in August, FundQuest, which was founded in 1993, has added $20 billion of assets under management from its parent and now has $30 billion in all. The company had built its reputation by selling wealth management solutions through more than 60 financial institutions, mainly banks and insurance broker-dealers. Now it is BNP Paribas' global brand for wealth management solutions in open architecture.
The relationship with the Paris banking company enables FundQuest to expand its horizons as the trend toward open architecture becomes a global phenomenon, Mr. Del Col said. "We are still pursuing the same segments, and now trust," he said. "We are going after banks, and insurance companies, and broker-dealers, and independent advisers. Now we are just able to go after them more broadly."
"BNP Paribas feels strongly that open architecture is moving to the rest of the world," he said, "but the rest of the world just hasn't adopted the concept fully."
Mr. Del Col said his company has more than 45 bank relationships. Four of the 11 relationships it established last year were with banks, he added, and he expects 27% organic growth of assets under management this year and 20% to 35% annual growth in the next three to five years.
Analysts said some banks remain wary of partnerships with a provider that is a banking company subsidiary but that BNP Paribas' limited U.S. banking footprint makes this more palatable.
"The key is going after people outside of the parent bank's footprint," said Burton Greenwald, an analyst at BJ Greenwald Associates in Philadelphia. "As long as there isn't that direct conflict, it can still work," he said, "but most banks are cautious. They don't want to lose customers to a competitor."
Mr. Del Col said he is not concerned about losing potential bank customers because other turnkey providers - like Lockwood Advisors, which was bought by the Bank of New York Co. in October 2002, and Advisorport, which was bought by PNC Financial Services Group's PFPC Inc. in September 2003 - have been able to develop bank business even after being acquired.
"Lockwood and Advisorport were bought by banks, and that didn't hurt their relationships with banks," he said. "We kind of knew that banking clients would be OK with this. BNP Paribas is a noncompetitive, nonthreatening institution to them."
Mr. Del Col said the association with BNP Paribas and the increased interest in offering open architecture products and services has spurred FundQuest to develop new bank relationships and new products.
Timothy J. Clift, FundQuest's chief investment officer, said the company expects to roll out four structured notes by June 30. These products, the first of their kind available in the United States, are principal-protected, fixed-income instruments that invest a percentage of assets in equities.
"These investments are for conservative investors that want exposure in the equity markets," he said. "These investors want more than just bonds."
In October, the company introduced a unified managed account platform. Mr. Clift said this platform enables banks to offer their mass-affluent customers a fee-based investment solution. A well-allocated managed account would require an investor to put $200,000 in each of five accounts, he said, since each account would be managed by a person with expertise in a single investment style.
However, a unified managed account, he said, gets around this allocation weakness by putting managed accounts, mutual funds, and exchange-traded funds all on one platform. An investor can get proper allocation for $250,000 on this platform, he said.
Financial Research Corp. has predicted that 90% of managed account assets will be in unified managed accounts within five years, but Mr. Clift said that, despite such optimism, the evolution of unified managed accounts will be slow. "This is not like mutual funds," he said, "there is a lot more education involved here."
Mr. Del Col said that, thus far, banks have been slower than insurance companies to adopt unified managed accounts.
Insurance companies want unified managed accounts in order to remain competitive, Mr. Clift said. "A handful of banks have an interest and know what this is, but as far as demanding it, we are not seeing that at all," he said.
Mr. Del Col said bank executives' chief interest in unified managed accounts is as a tool to recruit advisers from wire houses.
"Banks want to recruit a book of business from the wire house, so they want to be able to say they can offer a fee-based platform and a well-constructed UMA," he said. But most bank reps remain focused on transaction-oriented products, he added.
Plenty of opportunities exist for FundQuest to grow by working with banks, Mr. Del Col said.
"We really see an opportunity on the wealth management side of the business," he said. "BNP Paribas is a highly regarded player globally, and we see a great deal of opportunity for us to grow."
