Turnkey giant SEI is rebounding after a strategic about-face

SAN FRANCISCO — After a change of course following three turbulent years, SEI Investments Co. is once again winning assets from financial advisers.
The Oaks, Pa.-based turnkey asset management giant reported net inflows of $793 million in its adviser unit for the first six months of 2007, following total inflows of just $460 million for 2004, 2005 and 2006 combined.
SEI’s assets under management in its adviser unit grew 13% to $37.8 billion at the end of last year, from $33.4 billion at the end of 2005. Assets jumped another 7.5% to $40.6 billion by the end of June.
The company has made these strides in the aftermath of a strategic about-face. In 2003, SEI sent a letter to 2,500 of its 6,000 advisers telling them to boost their asset commitment with the company or wind down their relationships.
“We didn’t fire the clients, but the 50% who didn’t respond were frozen from doing further business,” Scott Dell’Orfano, who was then senior vice president of SEI’s Advisor Network, said in an interview three years ago (InvestmentNews, April 5, 2004).
The policy appeared to alienate advisers and gave heart to firms that were trying to catch up to the industry leader.

“SEI had this only-game-in-town [advantage], so they thought they would rewrite the rules,” said David Root, vice president of institutional sales for FundQuest of Boston, which has assets under management of about $14 billion through U.S.-based advisers.
In January 2006, Wayne Withrow was installed as executive vice president and head of SEI’s adviser business, charged with turning around the business and letting the 5,000 advisers who remained know that they were more than welcome.
Now he believes that the company can advance.
“We expect to accelerate our growth in this segment,” Mr. Withrow said.
But some of the damage may be hard to undo.
Righting the ship
“We figured SEI would find a way to right the ship,” said Ron Cordes, chairman of Pleasant Hill, Calif.-based AssetMark Investment Services Inc., which has TAMP assets of $20.5 billion on its platform.
“But we think it’s doubtful they’ll ever regain the 50%-plus market share they enjoyed in the early 2000s,” he said. SEI’s misstep “gave a lot of momentum to a lot of firms, and I think it will continue.”
Mr. Root agrees. “Since then, he said, “we’ve become much more proactive and aggressive.”
Genworth Managed Money, which encompasses AssetMark Investment Services Inc. of Pleasant Hill, Calif., and Genworth Financial Asset Management, realized net inflows of $2.5 billion for the six-month period ended June 30, more than triple SEI’s net inflows during that time period. From the beginning of 2004 through 2006, Genworth Managed Money’s net inflows topped $8.3 billion. The AssetMark and Genworth entities held only a combined $5.5 billion of total TAMP assets at the end of 2003, according to Mr. Cordes.
SEI now serves about 6,500 advisers, according to Mr. Withrow. The company is also making advances on the technology front, according to analysts and advisers.
“SEI’s making good progress in product innovations and the assurance of a sophisticated technology for wealth management,” said Richard Smith, president of Capital Advisory Group of Richmond, Va., which has $1.15 billion under advisement, some of which is managed by SEI.
“If they were able to [deliver] a superior wealth management platform], they’d really have a leg up,” he added. “I’m pretty confident they’re feverishly at work on that, and they know it has to happen.”
Yet analysts are taking a show-me stance to SEI’s regaining its dominance.
“If SEI can truly field a superior platform that advisers can see benefit from, then there is a possibility” it can regain its momentum as leader among TAMPs, said Robert Ellis, New York-based senior analyst in the wealth management practice of Celent LLC of Boston.
SEI already has a defining edge, Mr. Withrow said.
“If you look at the industry, we’re not active management, we’re not custodians, we’re not technology,” he said. “We’re an integrated solution.”
A question of scale
But trying to do it all can be perilous, Mr. Ellis said.
“SEI wants to do so many things: back office, money management and technology,” he said. “They’ve got scale, but it seems these days that it’s the firms with the laser focus that are winning.”
Indeed, this promised platform is a wild card for SEI, said Alois Pirker, senior analyst at Aite Group LLC, a consulting firm in Boston.
“The plans I’ve seen were really ambitious,” he said.
“The question is, what do they go live with? That’s where the proof will be in the pudding,” Mr. Pirker said.
Rival TAMPs said that though they respect SEI, they are focused on building on their own successes.
“Part of [SEI’s] getting back into [the smaller-adviser market] is because they see the opportunity, and we have been cranking along,” said Jim Fox, president and chief executive of FundQuest. “We are approaching a 20% growth rate in 2007, and it was about 19% in 2006 and 20% in 2005.” Mr. Fox declined to disclose net inflows.
“It is important to put SEI’s $793 million of net inflows into proper perspective. You’re looking at a run rate of less than $2 billion,” Mr. Cordes said.
“That’s not anywhere near success,” he said. “It’s a real work in progress.”