When SunTrust Banks Inc.s new full-service brokerage unit for wealthy people opens on April 2, its executives hope that by not offering proprietary products the Atlanta banking company will be able to expand its reach with high-net-worth investors.
The strategy of offering third-party investment products is revolutionary among banking companies, analysts say, but banks have been too slow to adopt it as competitors stole market share among wealthy customers.
The new investment platform, Alexander Key Investments, is to offer a variety of investment products from third-party companies, including separately managed accounts, mutual funds, alternative investment products, and brokerage capabilities. John Rhett, the managing director of Alexander Key, said that its open architecture approach lets SunTrust focus on being the financial hub for its wealthy customers.
"People like to throw around the words open architecture, but we really" will have it, Rhett said. "We arent pushing anyones products here. We want to offer whatever is right for the customer. I have been in this business 25 years, and we have built something here the way it should be done. There are no constraints of proprietary products that you have to offer first."
Rhett said SunTrust is building Alexander Key from its acquisition last July of Robinson-Humphrey, an investment banking business then owned by the Salomon Smith Barney unit of Citigroup Inc. SunTrust bought all of Robinson-Humphrey except its retail brokerage operations for $11.9 million, he said, and Alexander Key will work with Robinson-Humphrey to fill that gap.
SunTrust manages $128.8 billion of assets for high-net-worth people through its trust department but has been limited to offering its proprietary products. Rhett said that Alexander Key will open 18 offices in the next four years offering an array of third-party products and services. He said it will open its first five sites this year within longtime SunTrust market areas in Atlanta; Nashville; Washington; Richmond, Va.; and Orlando.
But by 2003, Rhett said, he expects to reach beyond SunTrusts "footprint" with Alexander Key offices in Boston; New York; Dallas; Miami; Tampa; Charlotte, N.C.; and Birmingham, Ala. The unit will accumulate $5 billion to $10 billion of assets within four years, he said.
"We want to draw clients from SunTrust and beyond," he said. "The affluent want to do business this way. They dont want to be restricted by a specific product set. We want to introduce clients to investing and then look to cross-sell them SunTrust products."
Alexander Key will use AdvisorPort, a Philadelphia-based investment consulting platform, to create client portfolios that integrate traditional, alternative, and proprietary investment products. Stephen DeAngelis, AdvisorPorts president, said this is the type of platform banks must create if they want to be hubs instead of spokes.
"More and more affluent customers want an array of products," DeAngelis said. "The role of the bank is changing from being a product provider to being an adviser. Banks are going from the sole investment manager to being a best of breed financial hub."
DeAngelis said AdvisorPort is working with 80 financial institutions, including insurance companies, independent advisers, and large wire houses, but that SunTrust is the first banking company. AdvisorPort has recently signed an agreement with Sterling, National City Bank of Clevelands private-client division, for a similar service, he said.
Analysts said the initiative sounds like a no-brainer, its so obviously needed, but that banks have resisted it. Rus Prince, a high-net-worth analyst at Prince & Associates in Shelton, Conn., said SunTrusts move is the broadest attempt by a banking company to approach wealthy investors with an open architecture.
"Banks are losing market share, and this is precisely what they must do to compete," he said.
Prince said SunTrusts model seems revolutionary among banks but that, in reality, banks are desperately playing catch-up.
"There are enormous opportunities here that havent been exploited because banks have been locked into proprietary products," Prince said. "Banks want to be the adviser of choice, but you cant be the adviser of choice if all you have is hammers in your tool kit."