NationsBank Corp. has unveiled its ballyhooed no-load mutual fund supermarket, featuring hundreds of big-name funds alongside the bank's NationsFunds.
Called FundsSolutions, the NationsBank brokerage program features more than 300 funds from more than 20 fund companies distinguished by their direct marketing prowess.
Funds from Berger Associates, Invesco Funds, Janus Funds, Scudder Stevens & Clark, and Warburg Pincus are among those being offered along with the Charlotte, N.C.-based banking company's 44 no-load funds.
Mutual fund supermarkets, pioneered by Charles Schwab & Co., let retail customers buy and sell funds from many companies with one phone call, and track their holdings on a single statement.
In the three years since Schwab launched its OneSource supermarket, a slew of imitators have followed suit, vying for the loyalties of both retail customers and vendors.
NationsBank executives would not discuss how they had enticed big-name fund companies, including many that were instrumental in attracting assets in Schwab's and Fidelity Investments' fund marts.
But according to vendors, NationsBank's strategy was to have a little something special for everyone.
For heavily institutional Federated Investors, already a supplier to NationsBank's brokerage and trust departments, the supermarket offered a short cut to a broader range of retail investors.
For direct-market giant Twentieth Century, there's the hope that its funds will be included in the bank's multimanager 401(k) program.
And for Scudder Stevens, which entered its first supermarket outlet in June when it signed with Schwab, there's anticipation that its funds could be folded into a wrap account.
All fund companies look to the supermarkets for access to new reservoirs of assets that can be tapped at marginal expense, several observers said.
"It may be cheaper to let somebody else get assets under management for 25 basis points than trying to do it yourself through direct mail and all of that," said Perrin H. Long Jr., an independent securities industry analyst in Darien, Conn.
No-fee fund supermarket operators such as NationsBank make their money not from sales or transaction fees paid directly by the consumer, but by billing the fund companies for assets brought under management.
Typically, fund companies pay supermarket operators 25 to 35 basis points on assets per year.
Weighing in NationsBank's favor is the fact that even Schwab, the acknowledged leader, gives fund companies access only to about 3.6 million active customers, Mr. Long said. In the beginning, at least, NationsBank may offer discount pricing to get fund companies to take a chance on its mart.
Schwab, which at first charged 25 basis points, has reportedly hiked fees as high as 35 basis points for new participants. NationsBank affiliates don't seem to be paying that kind of premium.
"We have the ability to pay up to 25 basis points, but we discuss it case by case,"said David F. Larrabee, vice president for alternative distribution at Twentieth century mutual funds, Kansas City.
Twentieth century is still negotiating final terms with NationsBank. But it has the marketing clout to link fee payments to minimum asset targets and reasonable fee rates, Mr. Larrabee said.
Mr. Larrabee said the firm already has turned down other supermarket entreaties. He declined to name them.
Federated confirmed that it was paying 25 basis points, the same it pays Schwab. The Pittsburgh fund company said supermarkets like NationsBank's can be a cost-effective method to reach customers outside its traditional base.
"We're strictly a wholesaler, so we're essentially able to get to retail consumers through the supermarkets," said James F. Getz, president of Federated Securities Corp.
But whether NationsBank's supermarket will attract significant assets for its partners remains an open question.
"We're looking for relationships where we can serve a critical mass of shareholders," said Howard Schneider, managing director at Scudder Stevens for new business development. "This is new area for Scudder, so we're going slowly and do not intend to be on every marketplace."
