Eager to capitalize on a boomming market, several no-load mutual fund companies have started angling to sell their products through banks.
Twentieth Century Investors, Berger Associates, T. Rowe Price, and the Evergreen Group are among the fund companies eyeing bank sales.
Banks, with their millions of customers, are widely regarded by fund companies as the last frontier for sales growth.
At a Disadvantage
But no-load fund companies -- so called because they do not charge up-front sales fees or exit fees, known in industry jargon as "loads" -- have been at a disadvantage in tapping the bank market.
The bank business has been dominated by mutual fund companies that specialize in selling through intermediaries and rendering investment advice to consumers. Banks and their brokerage sales forces each earn a cut of the loads.
Among the big names in this field: Franklin Resources, Putnam Financial Services, and John Nuveen & Co.
By contrast, the no-load firms do not provide investment advice and do not field sales forces. Instead, they operate chiefly by phone and through the mail.
Hybrid Products a Possibility
Without loads, there's no established way for banks to be compensated for distributing the funds.
To get around such obstacles, some no-load firms are considering developing hybrid products tailored to bank customers.
Twentieth Century Investors, based in Kansas City, is considering launching a series of load funds for sale exclusively in banks.
"The way to get into that marketplace is to have some type of loaded product," said Brian Jeter, the company's director of alternative distribution. "That's really what motivates those people to sell the funds."
|A Big Decision'
Most no-load companies are still in the early stages of figuring out how to enter the bank market.
"We have no agreements, but it's something that we're interested in," said Jessie Emery, spokeswoman for the Evergreen Funds. "We're just starting to even look at it. It's a big decision for us."
Evergreen, based in Purchase, N.Y., manages $3 billion in funds and another $1 billion in pension and individual accounts.
"Banks represent our next important step," said Rod Linafelter, portfolio manager of the Berger 100 and 101 Funds, Denver.
But he said Berger would probably move into banks only if it could strike a deal modeled on Charles Schwab & Co.'s popular no-transaction-fee account.
Handles Marketing, Servicing
Under that arrangement, Schwab markets the no-load mutual funds of Berger and seven other fund companies, and handles shareholder servicing and transfers.
Each fund company pays Schwab a fee of 25 basis points on the balances gathered. Customers, who pay no fees, receive consolidated monthly statements from Schwab.
Some no-load companies are considerably less enthusiastic about the prospect of marketing through banks.
"I've been queried by a few of my banking industry colleagues," said Brian Blomquist, vice president for marketing at the Lindner Funds, St. Louis.
|Impractical Business Decision'
But he said he is hard-pressed to see the advantages. Few mutual fund companies would want to share their management fees with a bank. "It's an impractical business decision," Mr. Blomquist said.
Other industry players maintain that the fund business is moving toward no-load pricing so rapidly that banks could be the big losers unless they learn to distribute funds more efficiently.
"Banks are like full commission brokerages. The cost structure is different," said Tom Taggart, a spokesman for Schwab.
Extending Their Reach
But some no-load company executives acknowledge that they could reach more customers if they got into the business of rendering investment advice.
"We reach 25% of the people out there who can make their own decisions," said Mr. Jeter of Twentieth Century. "That leaves out 75% of the people that need an intermediary."
He pointed to Fidelity Investors as a prime example of a company that has straddled the load and no-load markets.
Fidelity, which started out as a direct marketer, introduced its Advisor series of mutual funds several years ago. The Advisor funds are sold through banks, brokerages, financial planners, and other intermediaries.
