A lucrative arrangement that angered biggest players
The guided architecture concept – where bank staff guide customers through funds from six to ten big brand external managers, alongside house products – was introduced to Europe at Commerzbank by Joerg Brock in 2001. It worked very well, to begin with, when the internal manager, Cominvest, was not firing from all cylinders, and products such as Fidelity’s European Growth fund became best sellers among the bank’s retail customers. Even Threadneedle was taken to the hearts of customers on the German strasse, despite requiring acrobatics of the Teutonic tongue to pronounce it correctly. The reasoning was that these clients were becoming increasingly savvy and if a bank refused to stock the most popular products, they would go to a rival bank to buy them. There was a danger that clients could take with them not only their bank account and investment needs, but also lucrative mortgage and car-loan business. It was not long before this model was aped by local rivals Deutsche Bank, who started to contact Mr Brock’s distribution partners, before launching a similar programme in 2002. “We thought it was Christmas,” was the reaction from Fidelity’s clearly astounded head of mutual funds at the time, Thomas Balk. “They came to us and said: ‘We want to sell your funds.’” The movement soon caught on across borders in Holland, Belgium and Switzerland. Most large fund groups - particularly the independents like Fidelity, Invesco and Janus - would have liked the guided architecture trend to continue. The implicit deal by the bank’s partnership negotiators from the distribution bosses at the fund houses was as follows: ‘You spend money on advertising and marketing support for your funds, make sure performance does not drift too much, come up with the odd new idea, and we will guarantee a couple of hundred million euros in flows each year. Just make sure you give us a nice kick-back from the fund fees.’ A lucrative arrangement for all, but one that angered board members at the larger banks, particularly those representing internal fund production units. Once Cominvest had boosted its investment process, the commands began to come down from top management for advisers to ignore external funds, even if they were on a preferred list. Mr Brock – who was truly championing customer choice – eventually became disillusioned with the concept and left for rival Dresdner, to head up portfolio management for private clients. Now faced with reporting to Commerzbank management once more, after the merger between the two banks, Mr Brock is ready to move on again, after it appears that any use of external managers is being further curtailed. This is because the sale of Cominvest to Allianz contained a clause leaving Allianz Global Investors as the preferred provider for the majority of products sold through the two banks’ combined branch network.
