By integrating Lockwood Financial Services and its Pershing unit into one separately managed account platform, Bank of New York claims that it will be able to increase distribution and launch the next generation of these products.

The banking company announced late last month that the new platform, to be called Pershing Managed Account Services, will create one of the largest managed account programs, with $18 billion of assets. It will try to increase distribution through banks, independent broker/dealers and registered investment advisers.

Bank of New York bought Pershing - a provider of clearing and financial outsourcing solutions that includes a broker/dealer and mutual fund supermarket - on May 1 and acquired Lockwood, a provider of separately managed account services for independent financial advisers, last October. BONY will now make its Lockwood managed account products available on the Pershing platform.

Leonard A. Reinhart, the chairman and chief executive officer of Lockwood Financial Group Inc., said the new platform and increasing interest industrywide in fee-based products raise growth expectations.

"We are aggressively reorganizing our distribution services at Lockwood, and we have assigned six people to work with the Lockwood relationship managers to go out and attract business," Reinhart said.

Reinhart said merging the companies' managed account platforms will let Pershing increase the outsourcing of its products to banks and advisers.

Pershing already has $3 billion of assets under management through third-party outsourcing agreements, and Lockwood has $1.2 billion, including a relationship with Royal Bank of Canada, its largest.

"Pershing's broker/dealer network is a great distribution channel," said Richard F. Brueckner, the firm's chief executive officer. "This is a terrific marriage."

In addition to expanding distribution, the platform will be able to offer additional products. Reinhart said that since Lockwood will have access to Pershing's supermarket of mutual funds, it will be able to start a unified managed account program.

Unified managed accounts balance all of a customer's investments - hedge funds, annuities, exchange-traded funds and mutual funds - according to a single allocation formula. Those firms that offer unified managed accounts include Wachovia Corp., Citigroup, KeyCorp's McDonald Financial and PNC Financial Services' PFPC Worldwide.

"By offering unified managed accounts, we can go back to the independent broker/dealers with a new product that combines separately managed accounts with mutual funds," Reinhart said. "This puts us at the forefront of where the industry is today."

Interest in unified managed accounts has been "dynamic," he added. "People love the concept. Now they don't have to choose between fee-based products and mutual funds. We can combine them based upon a client's need."

Managed accounts continue to be among the hottest investment products. Assets in the product have grown from $161.01 billion at the end of 1996 to $442.86 billion at June 30, according to the Money Management Institute, and the trade group expects $2.1 trillion by 2011.

Gerard S. Cassidy, an analyst at Royal Bank of Canada's RBC Capital Markets who covers BONY, said typically these types of meldings create economies of scale that generate some expense savings. However, developing other opportunities will be more difficult, he said.

"The holy grail in financial services is cross-selling," Cassidy said. "There may be opportunities in this situation for cross-selling, but over the years, cross-selling has been difficult" to actually do.

Pershing's fee-based services have already bolstered BONY's bottom line. The bank reported that third-quarter securities-servicing fees rose 37%, to $657 million, reflecting a full quarter with the Pershing acquisition. Foreign exchange and other trading revenues grew 88%, to $92 million, and private-client services and asset management fees grew 14%, to $97 million.

Brueckner said in an interview that Pershing plans to work with BONY's various units, including its hedge fund unit, Ivy Asset Management.

Copyright 2003 Thomson Media Inc. All Rights Reserved.

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