Rookie App Shows Its Stuff

Compass takes leap of faith to expand its trust offerings.

Competition among mutual funds for high-net-worth clients is fierce. To compete, banks need to expand their trust department offerings beyond traditional products, according to Todd Smurl, EVP and managing director of investment management for Birmingham, Ala.-based Compass Bank ($30 billion in assets). "If you look at money flows into mutual funds, most of it is concentrated in the top five to 10 major [fund companies]," he says, adding that most other mutual fund players are experiencing declining investment inflows.

To make its trust/private bank business more attractive to potential clients, Compass Bank decided to expand its product offerings. "We had a large cap core stock portfolio and proprietary mutual funds for our trust clients, but it hadn't worked out very well in terms of profitability," Smurl relates. "We needed to adopt an open architecture to be able to offer our clients best-of-breed products while retaining the advantages of our trust operations for our customers -- high touch and feel."

In 2003, the bank started looking for a technology platform that would enable it to manage portfolios for customers who had investments with separate, noncaptive investment managers. According to Smurl, the dominant application in the space is Security APL from Atlanta-based CheckFree, and the bank implemented the wealth management platform in August 2004.

But, a competing product from Cambridge, Mass.-based Smartleaf, Portfolio Manager, had caught Smurl's attention. Though initially concerned that Smartleaf and its product were not time-tested, Compass officials decided to make the switch, signing with Smartleaf in October 2004. "We thought that it was worth the risk," Smurl relates.

According to Irene Ku, the bank's SVP of wealth management operations, Smartleaf's Portfolio Manager offers simple customization and an excellent overall customer experience. She adds that Portfolio Manager coordinates the activity of senior management, research, compliance, portfolio managers and relationship managers. The application also provides active tax management and tax optimization -- a key issue for many high-net-worth individuals.

The bank's trust department -- now known as the private bank -- employs a service-oriented architecture to connect trust, estate and lending departments to other system capabilities within and outside the financial institution. Ku explains that Compass has engaged Denver-based Prima Capital to evaluate outside investment managers and help the bank manage client portfolios. Compass develops an account holdings file daily and sends it to Smartleaf, which returns a recommended trades file that automatically reconciles with Compass' systems. "Connectivity to the best provider was important," Ku says.

Since Smartleaf hosts Portfolio Manager on an application service provider basis, Compass didn't need to purchase additional hardware for the implementation. But, additional coding was required to integrate the application into the bank's investment accounting and trading systems, so it didn't go live until May 2005. Compass branded its version of the product as SmartPath. For a few months, the bank ran the Smartleaf and CheckFree applications simultaneously; in late July, Compass discontinued use of the CheckFree product.

Though it is difficult to quantify the application's ROI since the bank doesn't separate its wealth management figures from overall financial performance, according to Smurl, SmartPath has "been well accepted by our client base," he says. And, "It's reenergized the sales team -- they have more confidence that the research process [via Prima Capital] is credible and unbiased."

Spotlight

Institution: Compass Bank (Birmingham, Ala.).

Assets: $30 billion.

Business Challenge: Expand trust offerings while maintaining high-touch customer service.

Solution: Smartleaf's (Cambridge, Mass.) Portfolio Manager, which Compass branded as SmartPath.