The mutual fund industry is about to gain entry to many of the nation's community banks.
The Independent Bankers Association of America has invited 31 sponsors of mutual fund families to bid for the exclusive right to sell their products through the organization to its 6,000 member banks.
Landing the contract would give a mutual fund company access to a vast and largely untapped customer base.
Alternatives to CDs Sought
As yields on bank certificates of deposit have declined, banks have been searching for investment alternatives to offer income-starved customers. One-third of the nation's banks now offer some investment products to bank customers through third-party providers, according to American Brokerage Consultants in St. Petersburg, Fla.
But community banks have found themselves at a disadvantage.
Because of their small size, they are not aggressively solicited by third-party marketing firms.
And even when they are approached, few feel comfortable about evaluating the products, revenue-splitting options, and sales methods presented to them.
The typical member of the IBAA -- which hopes to launch its fund program by the third quarter of 1993 -- has $45 million in assets, the trade group said.
Members Asked for Program
The program is being developed at the request of members, said Gary Teagno, president of IBAA Community Banking Network, a holding company for various service affiliates developed by the group.
The IBAA hopes that it will serve as an effective screen for products offered to its members. By banding together, the trade group added, community banks will create a critical mass that will give them access to attractive products.
The trade group has successfully marketed other programs to its members to help them sell travelers checks, credit cards, and mortgages.
"I think there's a very large market to be tapped," said Mr. Teagno. "We want to have a role in assuring the quality of training to community banks and the quality of marketing to bank customers."
He said that community bankers are also finding an increasing degree of sophistication among their customers.
"Many banks find that people have different pockets of money -- bank money, investment money, retirement money," he said. "They view [mutual funds] as a way to attract dollars that probably would not have come into the banks, regardless of interest rates."
Mutual fund companies interested in bidding must submit preliminary expressions of interest by Monday with written bids due by Jan. 4.
Ten funds have already said they will submit proposals.
Others Expressing Interest
"I'm interested, because anytime I can get in front of a bank, why not?" said Maryann Bruce, vice president in charge of the banking division at Oppenheimer Management Corp.
Other companies that have expressed interest in the IBAA projects are Franklin Resources Inc., Massachusetts Financial Services, Putman Financial Services, Colonial Mutual Funds, and Kemper Financial Services.
The IBAA is asking each bidder to complete a lengthy survey designed to gauge its experience in marketing to banks, its familiarity with the community bank market, and its attitudes toward dealing with bank customers.
"Our banks don't want to sell a mutual fund and then find that their customers are getting credit card solicitations in their statements," Mr. Teagno said.
