Barnett Eyes Ending Fees To Pump Up Fund Sales

In a clear signal of banks' desire to jump-start their flagging mutual fund businesses, Barnett Banks is considering a radical overhaul of its fund pricing strategy.

The Jacksonville, Fla., company may scrap the sales charges on its proprietary Emerald Funds as part of a bid to expand sales through retirement plans and nonbank channels, its chief asset management executive, Richard H. Jones, said in an interview this week.

The move would be a sharp departure for Barnett, which, like most banks, has viewed commissions from mutual fund sales as a centerpiece of its drive to boost fee income from investments.

While Barnett has not yet committed to the "no-load" sales strategy, the fact that the plan is under consideration shows banks' willingness to consider dramatic new approaches to lift sales.

"Banks are recognizing that consumers buy funds in different ways," said Amy K. Lipton, a senior consultant with Optima Group, Fairfield, Conn. "To place all of their chips on the load side of the table is placing a big gamble that people will only want to buy funds that way."

Barnett is weighing the plan at a time when bank mutual fund growth has begun to show signs of slowing from the brisk pace of recent years. While bank-managed funds grew 27% in 1995, their growth lagged the broader fund industry for the first time in nine years, according to Lipper Analytical Services, Summit, N.J.

Slackening asset growth certainly seems to be a factor in Barnett's decision. In an interview Monday, Mr. Jones acknowledged that the Emerald Funds have had subpar growth for the past two years.

The Emerald Funds held $3.9 billion at yearend, up 13% from 1994, according to Lipper. And the gains in stock and bond funds were conspicuously weak: Assets in these categories were up just 10%, well below the 46% average growth rate for the fund industry.

What's more, the growth that did occur in Barnett's long-term funds was largely due to asset appreciation. According Chicago-based Financial Research Corp., investors pulled $76 million out of Barnett's stock and bond funds in 1995.

In the interview, Mr. Jones said Barnett still has some big decisions to make before shifting its strategy.

"We are talking about going no-load, but we haven't figured out how to pay for it and give incentives for our brokers," he said.

He said the no-load strategy fits with a drive by Barnett to offer the Emerald Funds through investment products such as 401(k) retirement plans, annuities, and mutual fund wrap accounts.

If Barnett decides to sell its funds without sales charges, it would follow NationsBank Corp., which has plans on the drawing board to offer a new line of no-load funds.

No-load funds certainly seem to be catching on with investors. In 1995, they accounted for 41% of all mutual fund sales, up from 36% in 1994, according to the Investment Company Institute.

Mr. Jones' interest in no-load sales is not surprising. Before joining Barnett last August, he led a highly regarded no-load fund family at Fleet Financial Group, though the bank abandoned that approach after he left. Before that, he worked at Fidelity Investments, known as a pioneer in the no-load business.

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER