Pershing and Lockwood get the thumbs-up for their vision, a smooth transition and high client satisfaction.

    In 2002, Leonard Reinhart, founder and president of Lockwood Financial Services, carefully surveyed the industry landscape and quickly determined his company needed a substantial strategic partner to help capture and service this audience. Reinhart, whom many call a managed account pioneer, recognized early on that a demographic shift was occurring and the impending retirement of the baby boomers represented a major opportunity for the firm. As a result, he decided to expand the product line and offer more comprehensive services to meet the enhanced needs of his clients.
    Attracting a partner to help achieve these goals would be relatively easy because the firm was known as the leading provider of separately managed account services for independent advisors. Since opening his doors in 1996 as Lockwood Advisors (named after friend, colleague and fee-based pioneer Jim Lockwood), he grew the firm to approximately $8 billion in assets. A big motivator for a prospective partner would be to utilize the firm's processing technology for managed accounts provided by EMAT (the first common operating program for SMAs) that was founded by Reinhart and colleague Jay N. Whipple.
    Meanwhile, during the same time frame, John Iachello, managing director of Pershing Advisor Solutions LLC, began having similar discussions with his cohorts at work. Founded as a clearing firm in 1939, Pershing had long been recognized as one of the leading independent service organizations for financial professionals and institutions. From clearing and custody to trade execution and transaction reporting, the company offered a vast array of related products and services to meet the needs of its broker-dealer and independent investment advisor clients. But Pershing clients wanted more: They needed a turnkey asset management program for their fee-based practices to complement the services already provided. Both Iachello and Reinhart knew baby boomers would impact the financial services industry in a significant way, and they also recognized that the advisors who served them needed to catch up with the changing demands of helping them secure a successful retirement. In addition to access to a comprehensive product offering, advisors needed more research, asset allocation modeling, financial education, marketing support and, most important, the technology required to pull the entire plan together. Both Lockwood and Pershing wanted to be at the forefront of this evolution.
Enter The Bank Of New York

Within a relatively short period of time, two totally independent transactions took place that had major implications for the two companies and their clients. The Bank of New York purchased Lockwood in October 2002; Pershing joined the family in May 2003. Both firms provided complementary services with surprisingly little overlap. They served similar financial advisory clients and neither worked directly with the end investor.

Soon after the second transaction, the powers-that-be agreed that Lockwood would be a better operational fit under the Pershing umbrella rather than under The Bank of New York Holding Company. And because of their prior well-known reputations, the two firms maintained their own brand identities. Lockwood's Reinhart, a baby boomer himself, reflects on the merger: "With the demographics shift in this country, we wanted to attract the masses [of retirees] and knew that we needed to expand our product line from just separately managed accounts to include mutual funds, ETFs, hedge funds, commodities, REITs and even insurance products. The Bank of New York represented a tremendous opportunity. Soon, it became sort of a rapid fire moving from the Lockwood purchase to the Pershing transaction. With Pershing's expansive distribution network, I was like a kid in a candy store."
    Pershing's Iachello agrees that the transaction made a great deal of sense for his firm as well. "So much of our client base had a large and growing need for a managed account type offering. We could have built something internally, but it was a natural to hook up with The Bank of New York once the opportunity arose. Finding Lockwood as part of the BNY family was a godsend to Pershing. The manager platform and turnkey solutions complemented our traditional support services and greatly enhanced our overall offering."
    While both Pershing and Lockwood hoped to benefit from the newfound affiliation, their respective advisory clients stood to gain the most. Their practices were changing and they wanted the ability to service the growing investor demand for a fee-based platform, while still maintaining their traditional transaction-oriented business. They also believed that a more expansive offering would be appealing to the growing market of global investors.
    "We always valued our relationship with Pershing for their expertise in handling our custody and clearing needs." says Woodbury, Minn.-based Randy Downing, a CFP licensee, advisory consultant with the Wealth Management Group of Woodbury Financial Services Inc., and a longtime Pershing client. "However, our partnership moved to an entirely new level once they began providing additional services like research and due diligence as well as access to separate account managers and managed portfolios."

The Synergies: Increased Leverage For
Pershing; Increased Institutional For Lockwood
    Shortly after the new affiliation, Lockwood discontinued its small broker-dealer operations and offered its clients access to Pershing Advisor Solutions, a broker-dealer set up specifically for fee-based advisors. Pershing reaped the immediate benefits of an enhanced position in the industry with its ability to service existing TAMP clients previously using the Lockwood B-D. Additionally, with more advisors moving to fee-based practices, the Lockwood affiliation allowed Pershing to offer access to top-line managers, a broad range of managed account solutions, the research and due diligence, more education and marketing support and (at last) the integrated technology that its clients had been demanding.

Pershing's relatively smooth transition into the fee-based world solidified the company's current relationships by showing its ability to react to changing market conditions. While the firm continues to be among the industry leaders in clearing, custody and reporting services, Pershing clients now benefit from a fully integrated transaction and fee-based platform that greatly enhanced the total offering.

Iachello sees the trend toward fee-based business and independence gaining momentum. He believes more advisors will be leaving the wirehouse environment and setting up dual registration through both a broker-dealer and a registered investment advisor. "They can continue to keep their commission business and have fee-based clients as well. Fortunately, Pershing will be able to service both sides of their practices."

Pershing now offers access to several other TAMPs on its platform. The company remains agnostic about the products and services that its clients use and does not make recommendations to any particular separate account manager, mutual fund, or even TAMP service. In fact, as an additional offering, Pershing Advisor Solutions recently launched its Managed Account Direct platform, which allows sophisticated advisor clients to enter into contracts directly with the separate account managers they select for their investors' portfolios. This direct access is designed for those advisors who take a far more active management approach and coordinate all aspects of manager selection, asset allocation modeling and risk analysis for their clients.
    The benefits to Lockwood have been equally impressive. The company redesigned its business model and began to attract more institutional accounts like the independent broker-dealers and investment advisory firms that Pershing had long serviced. It has opened up 65 new relationships with existing Pershing clients, and grew its managed assets from $8.5 billion at the time of The Bank of New York acquisition to $22 billion today. Those institutional clients represent about 3,700 advisors who have opened accounts with Lockwood.

"Before The Bank of New York transaction, RBC Dominion Securities was our primary institutional advisory account," says Reinhart. "Mainly we took more of a rifle shot approach of targeting one advisor at a time and worked primarily with individual financial advisors, CPAs and stockbrokers. We soon began to work with Pershing's relationship managers and targeted more independent broker-dealers and RIAs that cleared through them. Through this newfound institutional access, we leveraged our growth and our number of advisors."
    Additionally, Lockwood has enhanced its product line. Pershing had long maintained a significant offering of mutual funds that could be purchased through the firm for either transaction or fee-based business. Likewise, ETFs and nontraditional asset classes like real estate, commodities and hedge funds were added to the platform. Lockwood's clients are able to structure more diversified portfolios with access to the additional asset classes and product types.
    Through Pershing Advisor Solutions, Lockwood has been able to expand on the concept of Unified Managed Accounts (UMA) by providing multiple financial products and asset classes within single brokerage accounts. As most advisors have experienced, the overall management of retirement assets can become quite challenging when investors hold multiple accounts. Reinhart believes that UMAs represent appropriate vehicles for well-diversified portfolios because of the ease of managing withdrawals and distributions throughout retirement. These structures prove beneficial when advisors devise comprehensive retirement planning strategies for their clients.

It's A Small World After All

The Pershing/Lockwood affiliation also has helped expand their global client bases where the growth rate has been far less substantial. In many cases, the investment climate abroad is not quite as advanced; as a group, international investors are not quite as sophisticated. Through the years, however, Pershing has excelled in developing these global markets. Of the more than 1,100 Pershing institutional relationships, about 100 exist outside of the United States. With offices in London, Liverpool, Dublin, Chennai (India), Sydney and Singapore, among others, Pershing has been actively working to increase its global presence and market share abroad.

Iachello is excited about the opportunities. "Historically our international clients have utilized our traditional business lines of custody, clearing, trading and reporting," he says. "Today Pershing is able to offer managed account solutions to these previously untapped global markets."
    While both Pershing and Lockwood have reaped significant benefits, most importantly, many of their clients are equally pleased. "We benefited from the Pershing and Lockwood affiliation," says Marty Richardson, vice president for broker-dealer operations at Princor Financial Services Corp. in Des Moines, Iowa. "The Lockwood on-demand performance reporting and quarterly performance reports were a step ahead of Pershing's performance reporting. The Lockwood name was also well respected with investment advisor reps, and this helped us from a recruiting standpoint. I believe Princor was one of the first firms to move aggressively to develop a managed account product using the Lockwood platform, and after some initial integration problems the platform has worked well for us. The feedback from our advisors and clients has been very favorable."
    Woodbury's Randy Downing adds, "Pershing worked with us, and like a true partner they expanded their level of products and service to meet our needs. With the Lockwood managed account solutions, our reps now have a greater ability to meet the needs of their brokerage and fee-based clients through one comprehensive platform."
    Were synergies created in the process? Did the corporate cultures mesh with each other? Did the respective client bases benefit from complementary products and services? Four years after The Bank of New York expanded its presence in the managed account world through the purchase of Lockwood, and followed that up by acquiring Pershing, the results seem unanimous. Win (for Pershing), Win (for Lockwood) and Win (for their respective clients and investors).