Banc One picks partner for push in mutual funds.

Bank One Corp., preparing for a dramatic expansion in consumer investment products, has selected a Massachusetts firm to carry out the key job of distributing and administering its mutual funds.

In teaming with 440 Financial Group, Banc One has hitched its ambitious mutual fund strategy to a small company with a growing reputation for innovative marketing technology.

Based in Worcester, Mass., 440 Financial made its name by helping Fleet Financial Group become a leader among banks in the fund business.

The distribution company is a unit of Allamerica Financial, which in turn is a subsidiary of State Mutual Life Assurance Co.

SEI Dropping Out

"We want someone who is willing to evolve with us and is not threatened by it," said Paul Walsh, chairman of Banc One Diversified Services Corp., a unit that includes the Columbus, Ohio-based banking company's mutual fund business.

Banc One's current mutual fund distributor, SEI Corp., will hand over the reins to 440 Financial on Dec. 1.

SEI, based in Wayne, Pa., announced last week that it had decided not to renew its contract with Banc One, citing strategy differences.

Distribution companies like SEI and 440 Financial are crucial partners for banks in the mutual fund business.

Though banks can and do manage the assets in a mutual fund, they are prohibited under the Glass-Steagall Act from organizing and registering the funds and offering them for sale to the public. Distributors fulfill that role.

Banc One, an acknowledged powerhouse in consumer financial services, has made managing and selling mutual funds a centerpiece of its retail strategy.

It operates 400 "personal investment centers" in branches. Consumers are offered a wide range of mutual funds, including selections from the One Group, the $5.4 billion-asset family of funds managed by Banc One.

Banc One awarded 440 Financial a one-year contract to serve as distributor to the proprietary One Group funds late Wednesday, after a lengthy meeting with the firm's principals.

Wide Range of Roles

In addition to the distribution duties Banc One itself could not undertake, 440 Financial will handle accounting, marketing plans, and some record-keeping duties - a mixture of roles that fall under the loose category of "administrative services."

Banc One will pay between $5 million and $10 million a year for 440 Financial's services, according to people involved in the negotiations.

This is in line with industry practice: banks in the mutual fund business typically pay their distributors between 10 and 20 basis points per dollar of fund assets under management.

A top priority, according to Mr. Walsh, will be for 440 Financial to help Banc One increase its market share in the mutual fund business.

At midyear, the One Group ranked seventh in asset size among bank-managed mutual fund families, according to data compiled for American Banker by Lipper Analytical Services.

Among the services Banc One will receive from 440 Financial is telemarketing. The firm's expertise in this area will help Banc One's push on the retail side, Mr. Walsh said.

The distribution firm's telephone marketing services have been widely credited for aiding the growth of Fleet's Galaxy Funds. In fact. 440 Financial's reputation for telemarketing prowess extends beyond the mutual fund business: the company also fields calls for the flowers-by-phone business known as 1-800-Flowers.

SEI Corp.'s decision not to renew its contract with Banc One took the market by surprise. With the boom in bank mutual fund activities, most distributors have been clamoring to get more fund assets under their belt.

In announcing its decision, SEI expressed dissatisfaction with Banc One's plans to "unbundle" services and handle more of the mutual fund work on its own. SEI said the change would have cut into its profits.

Mr. Walsh indicated that Banc One may still go ahead with plans to unbundle mutual fund services. But for now, 440 Financial will provide full-service distribution, including administrative services.

One of its strong suits is "flexibility," Mr. Walsh said.

Certainly 440 Financial sees the high profile contract with Banc One as a strong beacon for other banks to notice its services.

"This will be great for us," said Chip Russo, vice president of fund administration at the three-year-old company. "Because we're new, people have had a bit of hesitancy using us."

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