The money pouring into mutual funds will increasingly come from retirement plans, wrap accounts, and other long-term investments.
That was the conclusion of a panel of mutual fund experts here at the National Investment Company Service Association's annual operations conference. The experts also predicted that the mutual fund industry would grow between 9% and 10% a year until the end of the decade, compared with the 31% rate of growth seen in 1995.
But it is the growing importance of retirement funds to the growth of mutual fund assets that could have the biggest impact on banks, which have only recently begun developing and marketing retirement plans of their own.
"If you're talking about (building) a 401(k) strategy in 1996, then you're about four years too late," said Donald H. Putnam, a principal at the San Francisco-based investment banking firm of Putnam, Lovell & Thorton, a member of the panel.
Mr. Putnam compared the 401(k) plan business to the global custody business, which during the past several years has come to be controlled by a handful of banks that have the critical mass to make a profit from it.
However, unlike global custody, most 401(k) plans are now administered by the country's top mutual fund companies, making it difficult for banks and other new players to get a slice of the pie.
Brian Storms, a senior vice president for Fidelity Institutional Retirement Services Co. who was among the experts here, said that 40% of the mutual fund assets Fidelity manages are earmarked for retirement. Fidelity, the largest fund company in the country, is the second-largest provider of 401(k) plans, trailing the Vanguard Group.
Despite the heavy competition, William M. Ennis 2d, president of First Union Corp.'s Evergreen Investment Services, said if banks "want to be of any size in this business then you have to have either a defined contribution or defined benefit capability."
"The patterns are shifting," said Kurt Cerulli, principal of Cerulli Associates, Boston, told the group of 800 people. "The real growth in the past 18 months has come from emerging channels" such as 401(k) retirement plans, mutual fund wrap accounts, and fee-based financial planners.
Preliminary estimates from the Investment Company Institute show that last year 35% of all mutual fund assets, or $975 billion, were held in retirement plans, compared with 29% in 1993.
Mr. Cerulli said that banks are giving more emphasis to developing and marketing asset allocation and mutual fund wrap accounts, which are designed to retain assets over a longer term.
In 1995, banks introduced more mutual fund wrap account products than any other financial services provider, Mr. Cerulli said. He added that during the same period, only the wrap assets managed by regional brokerages grew faster than bank-managed fund wrap accounts.
