5 FUND GROUPS CLIMB ABOARD: WRAP ARTIST LPL TO SEE IF ITS ACT PLAYS OVERSEAS

LPL Financial Services has signed on five top U.S. mutual fund companies for its debut of a private-label asset management program for wealthy foreign investors.

The nation’s largest independent broker-dealer and the fund families are forming Global Portfolio Advisers, which will sell mutual fund wrap accounts through overseas brokerages, banks and insurance companies. Like other wraps, for a single fee, the firm will offer the investment services of the fund companies with allocation and monitoring by LPL, beginning this fall. Its goal is to attract more than $5 billion in assets by 2003.

The fund groups behind the ambitious endeavor are Franklin Templeton Group, Massachusetts Financial Services, State Street Research and Management Co., Scudder Kemper Investments and Colonial Group.

So far, Global Portfolio Advisers has signed agreements with three overseas investment companies to market the wrap service. It’s currently negotiating with several others, confirms Ziad Malek, Global Portfolio Advisers’ president. Mr. Malek, who joined LPL in mid-1997 from MFS, won’t comment on the agreements, other than to say they involve financial intermediaries in Latin America, the Middle East and the Far East.

“The response in the market is overwhelming to say the least,” says Mr. Malek. He is temporarily working out of LPL’s headquarters in Boston. “Our objective now is to make sure we select the right client.”

Perhaps. But the company also must take on established players, including the likes of Merrill Lynch & Co. and Salomon Smith Barney Holdings Inc.

The partnership between LPL and the fund families is the latest effort by an American financial services company to export success in the rapidly maturing U.S. retail market (InvestmentNews, March 9). U.S. companies account for a mere 3.6% of the $3.3 trillion mutual fund market abroad, reports Boston consultant Cerulli Associates.

Mutual fund and private account wraps totaled nearly $140 billion at yearend 1996 in the U.S. alone, the most recent period available. In U.S.-based mutual fund wraps, Salomon Smith Barney is the clear market leader, with a 19.2% share. It is followed by SEI Corp. of Wayne, Pa. (10.4%); Merrill Lynch (9.7%) and LPL (9.4%), says Cerulli, which doesn’t track the much younger offshore wrap business.

pick a portfolio

The new wrap product, which will be called Portfolio Managed Account, will have 10 portfolios, each with four or five underlying funds rebalanced on a quarterly basis. The funds are likely to come from the five fund groups, but may include others as well.

The wrap initially will be rolled out in Portugal, Bahrain, Kuwait, Hong Kong, Singapore, Argentina and Chile, Mr. Malek says.

“Everyone involved in this program sees big potential,” says C. Troy Shaver, an executive vice president at Boston-based State Street Research and Management, which is developing three to five international funds for the effort. “It’s very exciting.”

In addition to veterans like Fidelity Investments, the fast-growing list of U.S. companies courting international investors includes Putnam Investments and smaller companies like Eaton Vance Distributors and Pioneer Funds.

LPL’s latest move puts it in competition with Merrill Lynch & Co., PaineWebber Inc. and Salomon Smith Barney — each has been peddling offshore wraps for several years and has established distribution networks. It also pits LPL against such banking titans as Citicorp and Chase Manhattan Bank.

The proposed merger of Travelers Group and Citicorp ups the ante by giving Travelers unit Smith Barney an infrastructure of bank branches worldwide.

“Citi is extremely well-positioned around the globe, both in terms of its branches and its local reputation,” says a Cerulli consultant, Andrew Guillette. “They are viewed as a local institution in many countries, which makes them a perfect distribution vehicle.”

In March, Salomon Smith Barney Holdings and Japan’s Nikko Securities Co. also formed an alliance to expand their wrap business in Japan.

more players worldwide

But the formidable competition isn’t stopping LPL, which is billing its new offshore wrap as a private-label version of its domestic Strategic Asset Management program. With $7 billion in assets, SAM is among the most successful domestic wrap offerings. It is sold by 3,000 LPL representatives, but the offshore wrap will be marketed by external intermediaries.

While it will be up to the foreign banks, brokerages and insurance companies who market the program to set minimum investment requirements for their clients, PMA is geared to high-net-worth individuals, loosely defined in the U.S. as those with more than $1 million to invest.

The average investor is expected to pay at least 2% of assets annually, but the fee will vary by market, Mr. Malek says. That’s higher than the average 1.4% charged by U.S. wrap programs, but lower than the 3% to 4% charged by other offshore programs.

The fee will be divided among Global Portfolio Advisers and the overseas go-betweens.

Global Portfolio Advisers, which currently has five employees, will have its own team of Boston-based research analysts. The team will be headed by Jessica Hazzard, a former assistant vice president at MFS’s international division, who joined the company earlier this year to take charge of its marketing effort.

Mr. Malek says there’s a clear need for fee-based offshore asset allocation products.

“You have a great deal of wealth being created outside the U.S.,” he says. “When you start dealing with average investments of about $250,000 or above, people don’t want to talk about commissions.”