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Rating:Fund Supermarket May Sell Not Rated 3.6 Email Routing List Email & Route  Print Print
Wednesday, April 18, 2007

Fund Supermarket May Sell

Reported by Sean Hanna, Editor in Chief

If a much rumored deal goes through as expected, there may be a few feet less of shelf space in the nation's mutual fund supermarkets. Fund industry insiders have been buzzing since early this year that that Brookfield, Wisconsin-based Fiserv is shopping its Fiserv Investment Support Services (Fiserv ISS) unit. Now, The MFWire has learned that a deal may be worked out in a number of days with an announcement coming as soon as next month.

A Fiserv spokesperson declined to comment on the rumors, as did Skip Schweiss, executive vice president and head of the Fiserv ISS unit.

Possible buyers for the property include Charles Schwab, Fidelity Investments and TD Ameritrade. No representative of the three potential buyers would speak on the record. All three firms are Fiserv ISS's competitors in the fund supermarket and custody space catering to independent registered investment advisors and financial planners. While the independent RIA and planner market is substantially smaller than the registered rep market for fund distribution, it is an important distribution channel for many no-load and other direct-sold funds.

The latest word on the negotiations is that TD Ameritrade is currently the leading bidder for the property and is working with Fiserv to finalize a deal, possibly as soon as the end of this week.

A wrinkle in the sale is that Denver-based Fiserv ISS is a three-piece business: Not only does it offer fund custody, it also provides similar services to retirement plans served mostly by third-party administrators and features additional products to provide custody and administration services to banks.

While all three buyers are seemingly interested in the RIA and TPA focused business, they are less eager to pick up the bank-related business. However, sources say that Fiserv is packaging all three of the business together for the deal.

Over the winter TD Ameritrade was one of the first to take a look at the deal, according to mutliple sources at both firms. It initially passed on the deal when it learned that Fiserv wanted to keep all three business in the sale package.

That decision opened the door to other bidders and allowed both Charles Schwab and Fidelity Investments to make a move on the deal, say sources. Spokespeople at both Schwab and Fidelity declined to comment for this story.

In recent days, The MFWire has learned that TD Ameritrade has regained the inside track on the bidding and that a final deal may be worked out between TD Ameritrade and Fiserv by the end of this week.

If that deal falls through, both Schwab and Fidelity would be logical buyers in a deal that would consolidate two competitive markets in one stroke. The two firms are one-two in the independent RIA custody market and either would eliminate a rival and add scale through a purchase of Fiserv ISS. In addition, Schwab still has a tremendous amount of cash from the war chest that it built with its recent U.S. Trust sale -- more than $3 billion -- and has shown an appetite to buy into the 401(k) space with its 401(k) Company deal. Fidelity, meanwhile, has lagged in the race to provide fund clearing services to TPAs and also showed an appetite to acquire when it formed an alliance with SunGard last summer. However, both firms would likely be challenged in retaining Fiserv's existing customers as many of those RIAs and TPAs initially selected Fiserv as an alternative to the two giants in the sector.

However, TD Ameritrade may find Fiserv ISS to be a more valuable acquisition than its competitors do. While TD Ameritrade is a strong competitor on the RIA and planner side of the fund supermarket business, it lags behind its rivals in serving retirement focused TPAs. Last year it made a move to increase its presence in that market by purchasing Gail Weiss Associates, a Baltimore-based firm that provides fund clearing and settlement through the NSCC's Defined Contribution Clearing and Settlement (DCC&S) platform. However, Weiss had relatively few agreements in place with fund firms compared to Fidelity and Schwab, and a Fiserv ISS deal would catch TD Ameritrade up on that front in a hurry.

Interestingly, the deal may not take as much capacity out of the RIA and planner custody space as it seems on the surface as new competitors are still getting into the game. Perhaps the biggest to throw its hat in the ring recenlty is Pershing. The Bank of New York-owned provider, which is already a major player in the broker-dealer channel where it works with registered reps, announced earlier this week that it is beefing up its own fund custody and clearing services for the independent RIA channel. 

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