Trustmark Corp. plans to crank up its retail mutual fund sales by launching an asset allocation account that mixes proprietary and brand-name mutual funds.
The Jackson, Miss.-based banking company is set to unveil a new wrap account later this month that it plans to make the centerpiece of its retail investments strategy. Targeted at baby boomers and older customers who want more help managing their money, the account will include as investment options funds from E.M. Warburg Pincus & Co. and Gabelli & Co., as well as Trustmark's own proprietary products.
To pave the way for selling the wrap accounts - which typically carry an annual fee based on assets instead of a sales charge - Trustmark dropped the loads, or sales charges, on four proprietary Performance funds on Jan. 1.
"We wanted to see if we could change the mindset" in the bank, said Michael L. Allen, senior vice president at Trustmark, which has $5 billion in assets.
Trustmark's move mirrors a shift among many mainstream brokerages, such as Merrill Lynch & Co. and Smith Barney, that are increasingly emphasizing fee-based, rather than sales-based, compensation for brokers. The move comes as consumers express more resistance to sales charges, but demand more advice on allocating their assets.
Trustmark plans to levy a fee of 1% of assets on its wrap account, with a likely annual minimum fee of $500.
At Trustmark, the decision to go no-load has helped brokers adjust to compensation paid on assets under management rather than on sales, Mr. Allen said. It also has helped attract new customers.
"In six months, we've sold more than twice as much consumer funds than in the prior three and a half years," Mr. Allen said.
To make up for the dropped sales charge, bank brokers are compensated with the mutual funds' 0.25% distribution, or 12b-1, fee that is paid annually from fund assets. That applies even to the bank's money market fund, which has been the biggest asset gainer this year.
Trustmark also is subsidizing fund sales by kicking in what would have been its share of the sales commission for the first year under the old load structure. That could range from 30 basis points for a bond fund to up to 60 basis points for a stock fund, Mr. Allen said.
Trustmark has boosted its sales force, securing series 6 licenses for 50 platform workers this year. But platform workers still don't complete sales.
Instead, they refer customers to the banks' 15 series 7 licensed brokers. Because a growing group of platform workers are also licensed reps, they can legally split fees.
"We can be more generous and pay for the referral based on the ultimate sale of the product rather than a fixed amount," Mr. Allen explained.
Even after the no-load sales push, however, retail fund assets accounted for only $40.1 million of the bank's $812 million worth of proprietary fund assets, according to Lipper Analytical Services.
But shifting the bank's investment products to selling retail and no- load in preparation for the wrap program has been the top priority.
"Dollar amount sold is not as important right now as much as the whole focus change," Mr. Allen said.
Although he termed Trustmark's approach creative, A. Michael Lipper, president of Lipper Analytical Services, questioned whether the bank- subsidized compensation scheme may lead to a false sense of satisfaction.
"The retail people may think they're really accomplishing something, when if they were a pure (independent) economic unit they'd be quite far away from making money," Mr. Lipper said.
And although a wrap product may appear to be an easier sell than individual funds, one consultant cautioned that selling fee-based products is harder than it seems.
"Conceptually, this is the right thing for banks to do," said Richard Ross, a marketing consultant based in Glencoe, Ill. "But the problem for banks has been delivering the requisite level of counselling and advice for the customer."
