Thanks to a shift in marketing and sales strategy, mutual fund wrap accounts at First Chicago NBD Corp. are finally catching on.
After having trouble selling its wrap accounts through its trust officers, First Chicago in March began offering the product through its brokers. Since then, sales of wrap accounts - brokerage accounts that diversify assets among a sampling of mutual funds - have soared.
"Our initial focus was in our trust department, and we found those clients were very fee sensitive, which we did not expect," said W. Carter Neild, wrap account product manager for First Chicago Investment Management Co.
Trust clients found the 1% fee for the mutual funds, plus another 1% fee for managing the wrap account, rather steep, Mr. Neild said. And trust account officers were not used to charging such fees, he said.
But the bank's 150 brokers have had more success selling the accounts to trust customers, Mr. Neild said. Unlike First Chicago's trust officers, the brokers are certified to sell mutual funds and accustomed to selling fee- based products.
In August the bank's 150 brokers sold $3.5 million in wrap account funds, up from $300,000 in August 1995.
First Chicago launched its wrap product, which includes only its proprietary funds, in June of last year. There are no plans to offer other funds through the program, Mr. Neild said.
Mutual fund wrap accounts are gaining in popularity among bank customers, said A. Michael Lipper, president of Lipper Analytical Services Inc., New York.
"Brokers tend to be a harder sell than trust officers" and are likely to be more successful selling a product that requires an education process, Mr. Lipper said. "I would think it's a more complex sale, because they're selling other people's expertise in managing money," he added.
Big brokerages dominate the expanding market for wrap accounts. Only a handful of banks offer them, but their number is growing.
"Bank reps and customers are particularly receptive to the benefits of portfolio diversification that come with mutual fund wraps," according to a study by Cerulli Associates Inc. and Lipper published this year. Bank mutual fund wraps had $1.3 billion of assets at yearend 1995, up 142% from a year earlier. Overall, assets in bank and nonbank mutual fund wrap accounts rose only 60%, according to the study.
Mr. Neild of First Chicago said it is marketing wrap accounts to its junior trust customers - young clients with $20,000 to $300,000 or $400,000 to invest. The bank is marketing the accounts as a value-added service and wants to position itself as a place for "one-stop shopping," he said.
