Open talk: the growth market today in wealth management is the mass-affluent segment. And, the trend in reaching this group is through 'open architecture' investment solutions.

• Author: Bernstal, Janet Bigham
• Position: Wealth Management - Cover Story

Let's talk about the wealth management business. The competition of course, is intense. But real growth is promising. The opportunities reside mainly with the "mass affluent," say the experts, provided you've got the technology and culture in place to keep pace with the pack.

One approach to targeting and serving the mass affluent is to follow the trend toward "open architecture." This phrase refers to the concept of offering customers a selection of the best financial products available in the market--and not just proprietary products. In a way, open architecture is about positioning. Today's clients are demanding the best of the best. Banks need to bypass the limitations of proprietary investment vehicles by delivering open architecture investment solutions.

"Several smaller banks that we've built platforms for initially wanted to use a closed architecture, in terms of limiting the number of mutual funds ...," explains David Robinson, director of national accounts for FundQuest based in Boston. "But we're seeing that opening up rather quickly."

While banks initially wanted to take advantage of relationships and marketing support from strategic partners, compliance issues and industry news are prompting them to move toward a more global offering. It's also leading to a dramatic increase in sales.

"The rep is truly able to say, 'We're on the same side of the table because we use an outside firm [like FundQuest] with wide open options, and we're completely objective in our investment management and research,'" claims Robinson. "That's hitting home from a marketing standpoint."

Selling the process

Robinson's experience with early adopters is that they get in first with a mutual-fund-only discretionary platform, and then later add enhancements. Some of the reluctance in moving toward full open architecture stems from the differing philosophies in the traditional transaction business versus a fee-based one. Unlike a six-month CD, fee-based products are rarely sold in one sitting.

"Most fee-based products require a consultative approach in order to understand a client's needs and expectations, time horizon and tax situation, all the things that affect decision making," states Robinson. "In the fee-based world, they're really selling a process, so it's more likely the client will understand the importance of diversification and asset allocation."

The other positives in the fee-based selling process are many, according to Robinson. When targeting the mass affluent, those whose assets available for investing range between $100,000 to $500,000:

* The average account sizes are typically larger.

* Accounts are stickier because the clients have invested themselves in the process and don't equate the performance of one product with their happiness with the broker.

* With fee-based products, advisers can predict fairly well, based on assets, what they and the bank will earn over time. It may take a few meetings even with a $50,000 account, but once engaged, the advisers are uncovering and adding assets held outside of the bank.

"The adviser hears, 'I like what you've done with my CD rollover, and I also bare a 401(k) rollover at the wire house [big, national brokerage firm] clown the street," explains...