Fidelity Investments is adding more firepower to its efforts to market mutual funds through bank trust departments.
"Trust is a growth business for the next 20 years for us," said Paul Hondros, president of Fidelity Investments Institutional Services Co., in an interview Thursday.
Mr. Hondros said community banks in particular are turning to the giant mutual fund company, because their trust departments are seen as lacking "the wherewithal to run money."
Mr. Hondros said bank trust departments are demanding mutual funds for the portfolios of clients between $300,000 and $500,000. He said these portfolios are smaller and less cost effective to manage than $1 million portfolios of the super-rich that invest in individual stocks.
Fidelity, he maintained, is able to provide research, administrative support, and asset-allocation services that community banks need to compete in trust business, but can't afford to run on their own.
The institutional services unit headed by Mr. Hondros markets mutual funds through financial intermediaries such as banks, brokerage firms, and insurance companies.
In all, $85 billion of the $324 billion managed by Fidelity are under Mr. Hondros' roof. As much as $37 billion of those assets came from banks, he said.
As part of the push into trust departments, Mr. Hondros said, the company has hired two former bank brokerage executives and tailored some popular products for sale to trust clients.
The efforts appear to be paying off. In recent months, Fidelity has signed 11 new trust clients - including $7 billion-asset First Hawaiian Corp., Honolulu. Overall, sales through banks are on track to exceed $3 billion this year, with trust activities contributing a hefty share.
Industry experts say placing a greater emphasis on fund sales through bank trust departments makes sense for Fidelity, a firm with the size, resources, and name recognition to provide the research and administrative functions that bank trust departments often lack.
To be sure, the company has some formidable competition. The sale of mutual funds through banks is dominated by two smaller companies - Pittsburgh-based Federated Investors and Wayne, Pa.-based SEI Corp.
"Federated and SEI essentially built the bank trust departments, but what they don't have is Fidelity's muscle, brand name, and depth of management," said Kurt Cerulli, principal of Boston consulting firm Cerulli Associates.
He said Fidelity's heightened emphasis on trust department sales, combined with the power of the most powerful brand name in the business, could make Fidelity funds the dominant offering in trust departments.
Indeed, that's why Heritage Trust Co., Pittsburgh, signed up with Fidelity recently.
"The Fidelity funds have pretty good performance and name recognition, which means a lot for the comfort level of the participants of our 401(k) plan," said John Hopper, vice president of retirement services with Heritage.
Last month, Fidelity put in place a key part of its trust sales strategy when it began offering its popular Advisor Funds without sales fees through bank trust departments.
Bank brokers were accustomed to selling the funds, developed specifically for financial intermediaries.
But there was a problem: To compensate the sales people for rendering investment advice, these funds, unlike other Fidelity offerings, carried sales charges. Because they already charge a fee for managing an entire account, trust departments can't collect a sales fee on a mutual fund within that account.
To resolve the dilemma, Fidelity has kept those sales fees in place for most buyers, but it has created a separate class of shares for fiduciaries, such as trust departments.
To staff up the trust effort, Mr. Hondros in June hired Richard Tinervan, the former head of the trust department at NationsBank Corp., to run Fidelity's trust services division.
In July, Mr. Hondros also wooed Michael Kellogg, chief of Colorado National Bank's trust department. Mr. Kellogg will develop new products for the trust services division.
"We felt we needed people from the banking industry who can talk shorthand to our customers," Mr. Hondros said.
