Norwest Corp., an innovative bank known for its renegade ways, wants to loom large in the mutual fund world.
The Minneapolis-based bank is considering adopting several high-profile strategies to build its fund business, said P. Jay Kiedrowski, an executive vice president for investments and trust. These include buying or launching a family of funds with no up-front fees or "loads," and building its own no-load fund "supermarket" - a network that would allow consumers to buy and sell literally hundreds of funds through a single telephone call.
With $12.45 billion of mutual fund assets under management, Norwest is already considered a leader among bank fund managers. Its Norwest Advantage Funds - the ninth largest bank fund family - are sold to retail customers primarily through 260 brokers at Norwest's broker-dealer subsidiary.
Now, Mr. Kiedrowski said he plans to increase the bank's brokerage force to 300 by early next year. And he is looking to distribute the funds through other retail and institutional channels.
The moves are part of a plan to enable Norwest to compete not only against other banks, but head-to-head with mutual fund companies and other investment product powerhouses.
Adding no-load funds to its menu would enable Norwest to appeal to a broad swath of consumers who prefer to buy funds without the help of an investment adviser. And, by launching a fund supermarket, Norwest would be borrowing a page from discount brokerage king Charles Schwab & Co. and from mutual fund giant Fidelity Investments.
"They want to be a nationwide consumer financial services company," said Michael Plodwick, a bank stock analyst at Salomon Brothers Inc. "Norwest is one of the leading consumer banks, so this would dovetail nicely with that."
Indeed, Norwest chief executive Richard M. Kovacevich has said he expects 25% of the bank's bottom line to come from brokerage, trust, and insurance units by 2000.
Mr. Kovacevich has also stated publicly that selling multiple products to consumers is a key part of Norwest's strategy. In 1994, Norwest had about 3.6 relationships with each of its customers. Today, that number is up to 3.8, with Norwest aiming to increase it to 8.
Norwest is known as an innovator in other businesses. It sports the largest home mortgage operation in the country, and recently launched a pilot where discount securities brokers operate out of an unused teller cage in its headquarters building.
Such a trend-setter would not want to be left behind as other aggressive banks make strides in the investments products business.
Earlier this year, Barnett Banks Inc. and NationsBank Corp. each dropped the up-front fees from their respective fund groups. NationsBank followed that move with the launch of its own mutual fund supermarket this month.
Meanwhile, another aggressive bank, First Union Corp., shelled out $183 million last month for Keystone Investments Inc., a Boston-based investment and mutual fund asset manager.
But industry observers are skeptical that these strategies will pay off for banks.
"The herd mentality has set in," Joy P. Montgomery, a consultant at Money Marketing Initiative, Morristown, N.J., said of banks dropping up- front mutual fund fees. Banks are going no-load because everyone else is, she said, despite the fact that this strategy has yet to yield a success story.
In addition, Ms. Montgomery warned that trying to market both load and no-load funds is an especially difficult proposition.
"Very few companies do both well," she said. "The key is understanding they are different businesses, even though from an investment management perspective it is the same thing."
Richard Ross, an investment product sales consultant at Fifty-plus Communication Consulting, Glencoe, Ill., also said banks are beginning to take a "me-too" approach to dropping sales loads. But if any bank can successfully direct-market mutual funds, he said, it's Norwest.
"Norwest happens to be a smart operation," he said. Its retail brokers are better trained than those at most other bank brokerages, he said.
Earlier this year, Norwest introduced a mutual fund wrap account, WealthBuilder, to bring a steady stream of income into its nine investment units and try to retain its proprietary mutual fund assets.
