London’s custody bankers gossip incessantly about personnel moves, but in September Francis Jackson stunned that close-knit community into silence.
By Andrew Capon
November 2002
Institutional Investor Magazine
Bankers couldn’t fathom why the head of Citibank Global Securities Services, the world’s biggest cross-border custodian, would take a job with SEI Investments, a U.S. asset manager and technology provider that many of the Londoners had never heard of. Those who did know SEI regarded it as a potential customer rather than a competitor.
But after three years with the Citigroup unit, the 37-year-old Jackson decided to go after a potentially huge chunk of business that many mainstream custodians have neglected and that Oaks, Pennsylvaniabased SEI has made a priority in its European strategy: private client administration.
The service, including portfolio accounting and performance measurement, is similar to what custodians like Citi and Deutsche Bank (where Jackson has also worked) offer. But the custodians are mainly geared to reporting on the individual plans of pension funds or to serving asset managers who might have at most a few dozen mutual funds. In contrast, a private client administrator may handle thousands of subaccounts belonging to high-net-worth individuals.
“Custody banks can do accounting, but if a client said that there were 5,000 underlying accounts that they needed reports on each month, the banks would start sucking their teeth,” asserts Jackson.
His plan is to convince both private banks and the private banking divisions of big financial services companies to consider outsourcing as a way to cut staff and processing costs. Providing statements of client transactions and their often intricate tax implications, the service is “a bread-and-butter business for us in the U.S.,” Jackson notes.
Indeed, SEI reaps the majority of its revenues -- $471 million in the first nine months of 2002 -- from the private banking and trust area. Users of SEI’s trust accounting software include Bank One Corp., Charles Schwab Corp. and Wells Fargo & Co.
“There is no reason why Europe shouldn’t be an equally important market for us,” says Robert Aller, SEI’s head of European financial institutions and Jackson’s boss.
Through its three-year-old London office, the company is targeting a E14 trillion ($13.7 trillion) wealth management market that is growing 7 percent annually, according to PricewaterhouseCoopers. The business is highly fragmented, to say the least -- Switzerland’s UBS, the market leader, has a mere 1.8 percent share. SEI has identified 900 potential customers in the U.K. alone.
The company is banking on wealth managers’ increasing openness to third-party services. SEI offers the option of bundling fund management with administration.
“Outsourcing is the wave of the future,” says Bruce Weatherill, head of PwC’s private banking and wealth management practice. “Private banks will certainly look at outsourcing of administration if it is presented in a [cost-cutting] light.”
SEI does not have the field to itself; some global custodians are muscling in. “This is a market we know well, and we offer the full range of custody and administration services to clients in Europe,” says Lucille Knapp, London-based head of business development for Chicago’s Northern Trust Co.
State Street Corp. (see Global Securities Services) set up a wealth manager services division two years ago. Jeffrey Conway, the Boston-based institution’s head of U.K. and northern Europe business, says that mutual fund accounting -- State Street provides daily net asset values for more than a third of U.S. funds -- is an ideal springboard into the private client business. “Private client administration is accounting-led rather than custody-led,” says Conway.
Both Northern Trust and State Street offer private client administration services as part of a bundle that includes custody, securities lending and foreign exchange dealing. SEI, which does not have a banking license, must farm out the actual safekeeping of assets to a third-party custodian.
“Our competitors are building this business with a custody mind-set, which is a commodity mind-set,” argues Jackson. “At SEI we are approaching this market with the perspective of a fund manager. We will offer outsourced administration alongside outsourced fund management.”
Jackson is now trying to land a first customer to demonstrate SEI’s viability in Europe. He doesn’t consider custodian outsourcers his biggest competition; instead, it’s likely to be managers that are determined to perform administrative functions themselves. His prediction: “Once we have one or two big-name banks on board, once there is a perception that do-it-yourself is not the only alternative, the dam will break.”
