Fifth Third Bancorp is trying to reap competitive dividends from its dual roles as manager and servicer of mutual funds.
The highly profitable bank, which now manages $1.3 billion of assets in its Fountain Square proprietary funds, has ambitions of boosting mutual fund sales by 25% in the coming year.
And in October, the $17.2 billion-asset Cincinnati banking company expanded its fund servicing business to include fund accounting, first developed for its own Fountain Square mutual funds.
Fifth Third's competitive advantages spring from its experience in each of these enterprises, an executive said.
"We understand other fund complexes because we run our own," said Scott N. Degerberg, vice president for trust and investment services at the bank.
The bank's most established servicing role has long been as a custodian for the securities of trust companies, insurance companies and other bank mutual funds.
It holds assets for more than 80 mutual funds from 17 separate complexes, including those of BayBanks, Boston, and Mercantile Safe Deposit and Trust Co., Baltimore.
And executives believe diminutive Fifth Third can actually prosper from the increasing consolidation in the custody niche, which is dominated by State Street Boston Corp. and Bank of New York.
"There's less choice out there," Mr. Degerberg said. "We offer a clear choice, and we're flexible and can provide personal service."
But landing business may be easier than realizing profits. "There's always room for competition, but it's a very skinny business," observed Geoffrey H. Bobroff, a mutual fund consultant based in East Greenwich, R.I.
Developing a fund accounting system for the bank's proprietary funds was behind the latest expansion in fund services.
But so far, the bank's Fountain Square funds remain the only customer for the new service.
The bank is looking for outside help to enhance sales of its own funds. Nearly two-thirds of the assets are in money markets, driven in large part by sales of institutional cash management services, Mr. Degerberg said.
On Dec. 1, Fifth Third chose a new fund administrator and distributor, replacing Federated Services, Pittsburgh, with Bisys Fund Services, Little Falls, N.J.
Lifting fund sales more than cost savings motivated the recent switch from Federated to Bisys, Mr. Degerberg said.
While the funds' administrative costs may decrease slightly under the arrangement, Mr. Degerberg cited Bisys' marketing expertise as the most important factor behind the switch.
But the ability of outsiders to transform bank programs is less than stellar, one observer said.
"By and large, none of the distributors have been setting any records with boosting sales," Mr. Bobroff said.
"The bank really needs to work its customer base," he declared. "It's very difficult for an outsider to come in and do that for them."
