First Union Corp. has made a strategic alliance to help market its Evergreen family of funds to public-sector employees.
The Charlotte, N.C., banking giant struck a deal with the Legend Group, a Palm Beach Gardens, Fla.-based retirement plan marketer, to sell the Evergreen Funds through 403(b) plans.
The arrangement marks First Union's first foray into public-sector retirement plans, and is the first time the Evergreen Funds will be sold outside of the banking company's branch system.
"This is only the first part of our effort to diversify into other markets," said Donald A. McMullen Jr., executive vice president and head of First Union's capital management group. "It's a huge market that has yet to be tapped, and it's a first step in taking the Evergreen Funds outside the bank channel."
The Legend Group began marketing the Evergreen 403(b) retirement plans throughout First Union's southeastern markets last week, after the announcement was made.
The 403(b) plans serve as retirement savings vehicles for employees of universities, public schools, hospitals, and other nonprofit organizations. These plans are the public-sector equivalent of the better-known 401(k) plans, which may only be offered by corporations. State, local, and federal employees are served by retirement plans known as 457 plans.
First Union's move into the public-sector retirement market is an unusual first, albeit small, step to marketing the Evergreen Funds more widely, some experts say.
"I think it's an interesting strategy, given that most banks look to broker-dealers as a way to penetrate outside the bank channel," said Glen Casey, a consultant with Cerulli Associates, Boston. '
Other banks, such as State Street Boston Corp. and Bankers Trust New York Corp., have tapped into the 403(b) market, as have mutual fund companies and investment marketers such as James Mitchell & Co., San Diego.
The market is an appealing one for banks trying to increase the assets in their funds, Mr. Casey said. The average 403(b) account is almost twice the size of a similar 401(k) account and assets tend to be more stable.
Participants are also generally better educated, making it easier "to sell the concept of investing and saving than it is in some of the broader markets," he said.
While the alliance with the Legend Group gives First Union the expertise to help it crack the public-sector market, some experts predict it will be tough going for the $80 billion-asset banking company.
"It's a market that's highly competitive and is really locked up by three players," Robert Wuelfing, president of Access Research, a retirement market research firm in Windsor, Conn.
One company, Teachers Insurance and Annuity Association-College Retirement Equities Fund, New York, controls 40% of the 403(b) market, with $142 billion of assets under management. Variable Annuity Life Insurance Co., Houston, and Fidelity Investments, Boston, round out the three competitors, Mr. Wuelfing said.
The 403(b) market is roughly half the size of the 401(k) market, with $280 billion of assets outstanding. But assets in public-sector plans are growing 11% a year - comparable to the 15% growth rate in the 401(k) market, Mr. Wuelfing said.
