If so, then they may be able to staunch the asset flow to BDs and boutiques. Private banks and trust companies are now more apt than ever to consider open architecture investment platforms to help them wage an increasingly competitive fight for high-net-worth wallet share.

All the Right Moves, a new study of the investment proclivities of 65 private banks and trust companies by Los Angeles-based investment banking and consulting firm 3C Financial Partners says that 38% of the institutions surveyed said they were using third-party investment platform outsourcers, 17% said they were in the process of building open-architecture platforms of their own and 9% said they were actively evaluating approaches to open architecture.

"There is no doubt that banks recognize the need for more flexible, objective and competitive investment offerings for their clients," says Kevin Osborn, executive v.p. of Prudential Investments ' Managed Accounts Consulting Group, which commissioned All the Right Moves as well as its 2005 precursor Platform Made Perfect, also by 3C.

Hemorrhage

The term "open architecture" is often applied to investment platforms that combine proprietary and non-proprietary investment products. Others call that "enhanced" or "hybrid" architecture, however, and reserve the "open" designation for firms with no proprietary offerings at all.

Definitional niceties aside, it's perhaps time banks started warming up to open architecture as a way to woo affluent clients. Though some banks and trust companies rank among the most formidable names in wealth management, and banks are the fastest growing separately managed account distribution channel, many of them are in fact hemorrhaging high-net-worth assets.

North American private banks saw their share of such investors' professionally managed assets decline from around 86% in 1995 to 38% percent at the end of 2004, according to Platform Made Perfect. By 2010 private banks could be managing just 29% of those assets in North America.

These losses look worse in light of a global increase in high-net-worth assets. The total wealth of individuals and families around the world with at least $1 million in financial assets went from $14 trillion in 1995 to about $33 trillion at the end of 2005, according to Capgemini's and Merrill Lynch's 2006 World Wealth Report. By the end of this decade, high-net-worth assets could hit $44 trillion, according to 3C estimates -- with North America's wealthy accounting for about a third of that total.

The main beneficiaries of the banks' failure to retain to high-net-worth assets are big brokerage houses and boutique investment advisories. The wirehouses have made product and platform enhancements to streamline fee-based, best-of-breed advisory and the boutiques provide personalized investment-consulting services.

All the Right Moves lays out a nine-step approach for banks looking to implement open architecture, each action supported by 3C's research and analysis.

"This report will help banks migrate to a platform that offers the potential to improve business results through growth with both new and existing clients," says Osborn -- whose group provides third-party investment outsourcing to banks and other financial institutions. -FWR

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