VERY RICH ARE DIFFERENT AND SCUDDER WANTS THEM: NO-LOAD FIRM REDIRECTS BIG BUCKS BIZ AFTER MERGER WITH ZURICH KEMPER

Mutual fund giant Scudder Kemper Investments Inc. is scaling back an ambitious plan to attract affluent do-it-yourself investors.

The 18-month-old initiative – dubbed Scudder High Net Worth Services – was aimed at bypassing intermediaries and directly attracting investors with $100,000 to $2 million in investible assets by offering personalized financial services, including portfolio management and tax, trust and estate planning.

Scudder’s decision to redirect its High Net Worth Services initiative illustrates the tough competition that many direct-sold mutual fund managers face in attracting lucrative – but demanding – affluent investors.

But the overhaul doesn’t mean the New York-based money manager is abandoning its ambitions to attract well-heeled clients. More likely, the move is an outgrowth of no-load-oriented Scudder Stevens & Clark’s recent merger with Zurich Kemper, which distributes its funds through brokers, financial planners and others.

It is less important now for Scudder to set up a separate division to attract high-net-worth clients when one-half of the company already targets them, says Andrew Guillette, a high-net-worth consultant with Cerulli Associates in Boston.

Under a plan announced last week, Mark Casady, director of Scudder Kemper’s mutual fund group, said the High Net Worth Services unit is being folded into Scudder Direct, a newly consolidated unit that includes the direct sales mutual fund group and an Internet-based fund sales project.

“We broke (direct fund sales) into two units before we had the segmentation data,” says Mr. Casady. “We found that almost all our customers are affluent and that the two businesses would be going after the same type of clients. So it made sense to put them back together.”

William Baughman, a marketer hired away last April from Charles Schwab & Co. to run the new venture, will head the combined unit. Maliz Beams, High Net Worth Services’ second-most senior executive, has been reassigned to a new post aimed at b
uilding business links with units of Swiss insurer Zurich Group, which owns 69.5% of the money manager following Scudder’s December merger with Chicago-based Zurich Kemper Investments Inc.

Indeed, though Scudder Stevens & Clark managers dominate Scudder Kemper – and can veto acquisitions or alliances – the rapid trend toward selling through middlemen could make Kemper the combined company’s strongest distribution vehicle.

Scudder’s High Net Worth Services venture was aimed at winning additional business from the richest 10% of its mutual fund shareholders, as well as attracting new business from wealthy do-it-yourselfers through affinity deals and direct marketing campaigns.

Like many mutual fund companies, about 20% of Scudder fund shareholders control 80% of the firm’s assets under management. “We want those clients who have a lot of assets with us to see Scudder as their primary relationship,” says Mr. Casady.

many new services

Over 18 months, the firm has launched a host of new services – from a brokerage and souped-up Internet site to real estate, index and other funds designed to appeal to the wealthy. In addition, Scudder experimented with outside direct marketing campaigns and bought access rights to the American Medical Association’s membership list of 260,000 practicing physicians and residents and 40,000 medical students. Mr. Casady estimates the nine-month-old program has generated $70 million to $80 million in new accounts and is 20% ahead of Scudder’s projections.

In a way, Scudder’s pursuit of rich do-it-yourselfers is a return to its roots as one of the country’s first high-net-worth money managers nearly 80 years ago. Until the late 1960s, Scudder and New York-based Lionel Edie Inc. (acquired by Merrill Lynch & Co.) were the two giants of the high-net-worth business.

grew a little bored

“Then they decided that business wasn’t interesting enough and made initiatives into the pension fund business and then the mutual fund business,” says Michael Stolper, preside
nt of San Diego-based Stolper & Co., which evaluates investment managers for wealthy families. Scudder’s original high-net-worth business – which maintains a $2 million account minimum – managed about $10 billion, or less than 8% of the firm’s $129 billion in assets before the merger.

“They are now back to full circle, because high-net-worth clients are where the margins are,” he adds. “You don’t have to be alive too long in this business to be watching reruns.”