By teaming up with Charles Schwab & Co., executives at First Union Corp. and KeyCorp say they have found a quick and easy way to offer customers a variety of fee-free funds.
While other banks are busy building their own mutual fund "supermarkets" of no-load funds, First Union and KeyCorp will be able to offer their customers access to Schwab's OneSource almost immediately, executives at those banks said.
"We could stick our head in the sand and ignore (the supermarket trend), or address it pretty aggressively," said Jack Kopnisky, president of the retail brokerage unit at KeyCorp.
"Now our technology investment is minimal and we have the brand awareness (Schwab has) built up over years," he added.
KeyCorp's customers will have access to the service through a toll-free telephone number beginning in March.
Last week, KeyCorp and First Union became the first two banks to announce plans to offer their customers access to OneSource. The news comes at a time when some banks, such as NationsBank Corp., build their own fund supermarkets, and others, such as Citicorp and Norwest Corp., ponder whether to do so.
By going the Schwab route, KeyCorp and First Union will get into the supermarket arena without having to negotiate deals with the mutual fund companies, develop the systems, or invest in the necessary technology, said Joy P. Montgomery, a consultant at Money Marketing Initiatives, Morristown, N.J.
"The bottom line is the customers want choice," she said.
Some observers said other banks are likely to follow KeyCorp and First Union in deals with Schwab. But, they questioned how successful bank supermarkets - whether done alone or with a partner like Schwab - would ultimately prove to be.
"It's a fad, a phenomenon that more banks will join," said Geoffrey H. Bobroff, a mutual fund consultant in East Greenwich, R.I. "To an extent, there is a herd instinct here.
"Remember, when banks went into the discount brokerage business, it didn't work," he warned.
Before teaming with Schwab, Cleveland-based KeyCorp did consider starting its own supermarket service, Mr. Kopnisky said. But officials there determined that it would take too long for the bank to build a brand identity.
At First Union, the Schwab service will be offered in conjunction with financial advice, for which customers will pay 1% to 1.5% of assets, said Dwight Moody, president of First Union Brokerage Services Inc., Charlotte, N.C.
Mr. Moody denied that the arrangement with Schwab was a defensive move. By offering customers a range of products and services, the bank will be able to meet their needs rather than send them someplace else, he said.
Meanwhile, executives at First Union's crosstown rival, NationsBank Corp., remain committed to building their own fund mart.
"We had the size and resources to do this ourselves," said Robert H. Gordon, senior vice president and director of marketing and product development of NationsBanc Advisors Inc. "If it is truly core to your strategy, and you want to go beyond just offering another product, you have to be in constant control of pricing and offerings."
