Morgan Widens Marketing to Tier below Super-Rich(J.P. Morgan and Company Inc.)

By Garmhausen, Stephen | American Banker, October 24, 1997 | Go to article overview

Morgan Widens Marketing to Tier below Super-Rich(J.P. Morgan and Company Inc.)


Garmhausen, Stephen, American Banker


J.P. Morgan & Co.'s deal in July to buy 45% of American Century Investments was more than just a way for the bank to enlarge its already hefty proprietary mutual fund business.

The bank's $900 million investment in the Kansas City, Mo.-based fund company underlines a striking shift in strategy. Morgan, the elite institution for big corporations and the super rich, is in the midst of a major play for the high-end retail market.

It wants to take its 401(k) business to a new level, and it wants to reach beyond its traditional high-end clientele to those with liquid assets in six digits.

The alliance has made a splash in the banking and investment industries because it reflects the growing power of individual investors, a power financial institutions cannot afford to ignore.

"Individuals are increasingly important in investment decisions," said George Gatch, the Morgan vice president who heads U.S. mutual fund sales and marketing. "We have not focused on building a large branch network or serving a large number of consumers. For us to continue to be one of the preeminent investment managers in the United States and in the world, we must be a dominant mutual fund provider."

Perhaps the partnership's biggest benefit for Morgan is that it opens the door to the rich 401(k) business. Increasingly, Morgan's institutional customers are shifting from traditional defined- benefit pension plans to defined-contribution vehicles.

Morgan manages $11 billion in 401(k) assets, but it lacks the technology to expand quickly. American Century, with $10 billion in 401(k) assets, has the computer systems and customer service centers that will allow Morgan to solve that problem.

The alliance also broadens Morgan's limited fund offerings - American Century has 70 funds including aggressive growth funds, which Morgan lacks. That too should fuel the bank's 401(k) business.

"Customers demand brand-name funds and funds with strong track records," said Charles Wendel, president of Financial Institutions Consulting, New York. Morgan has "bought expertise and market position it would take them a long period of time to develop internally."

Morgan also expects to find clients for its funds and private banking services among American Century's two million customers. A hypothetical American Century 401(k) client may retire with $100,000 or more. American Century would then advise the client that Morgan offers products and services for managing that stake, such as mutual funds, brokerage, liquidity services, credit, and estate planning.

"What we want is that seamless transition," said Jeff Garrity, a Morgan managing director who oversees the U.S. defined- contribution business and sits on the Morgan/American Century steering committee. …

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