U.S. Trust using Essex to sell small-business 401(k) plans.

Eager to build on its ties to small-business clients, Boston-based U.S. Trust has begun marketing 401(k) plans through a new mutual fund division.

The $2 billion-asset bank launched the program in mid-May with sales support from Essex Corp., an investment products marketing firm based in New York.

Mutual funds and annuities for retail investors are also part of the product mix. But the emphasis on 401(k) plans is especially noteworthy because it is unusual for a bank of U.S. Trust's size to offer the plans.

Corporations sponsor 401(k) plans to enable their employees to defer taxes on a portion of salary that is set aside for retirement.

Growth Potential

Though most big companies already offer their employees 401(k) plans, many small companies are just beginning to provide the retirement plans, said Scott Davis, vice president and director of the investment group, as U.S. Trust's mutual fund division is known.

"It's a real potential growth area for mutual fund sales," Mr. Davis said.

Mr. Davis joined the bank in January from the mutual fund division at BayBanks, Boston, where he was the northeastern regional sales manager.

He said U.S. Trust will market its 401(k) services to companies with 25 or more employees.

Bonuses for Referrals

Under the arrangement, six sales representatives licensed through Essex will cover 34 U.S. Trust branches in Massachusetts and Connecticut.

Branch employees who refer customers to the investment group will be eligible for bonuses, Mr. Davis said, and bonuses will be paid whether or not referrals result in a sale.

Sales representatives will offer mutual funds and "turnkey" 401(k) programs from four mutual fund companies: AIM Management Group, Eaton Vance Corp., Fidelity Investments, and Putnam Financial Services.

Small businesses could go directly to a mutual fund company to set up a 401(k) plan, but Mr. Davis said he believes the bank has an important role to play in the process. Small businesses "need someone to guide them through the process," he said.

Customers who buy mutual funds at bank branches will be able to choose among funds with front-end, back-end and level sales loads, Mr. Davis added. In all, 40 funds will be offered.

The bank will make its money by collecting a portion of the sales fees, as well as trailing commissions that are paid to the seller as long as the investor holds onto the fund shares.

It will also offer an asset-allocation program developed by Fidelity, for which customers will pay a management fee equal to 1% of assets invested.

In choosing a marketing company, Mr. Davis said he looked over dozens of contenders before narrowing his list to three.

"When you're looking at these companies, you find they all do business in very different ways," he said.

"It came down to Essex because of their operational capabilities and marketing expertise," he said, adding, "We needed to have someone who was willing to be flexible and develop our program."

Kevin Crowe, president of Essex, said U.S. Trust's desire to market 401(k) plans coincided with his own interest.

"We were looking very hard at getting into that business through our bank marketplace, and U.S. Trust was one client that wanted to get into it right away," he said.

Sales Staff Specially Trained

Mr. Crowe said the sales representatives at U.S. Trust have received special training to help them work with both retail and corporate clients. "It's a different discipline. It takes some technical knowledge in the 401(k) area," he said.

Mr. Crowe said U.S. Trust's top management has expressed strong commitment.

"They had a good kickoff of the program, with top management saying 'This is part of the bank,'" Mr. Crowe said. "It wasn't launched in a closet in the back room."

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER