Bank-managed mutual fund wrap accounts achieved one of the fastest growth rates in the financial services industry last year.
Assets in bank wrap fund accounts climbed 142%, to $1.3 billion - more than double the securities industry's 60% average for wrap funds, according to a report by Boston-based Cerulli Associates and Lipper Analytical Services of Summit, N.J.
The report, released Feb. 21, said banks outpaced every other part of the industry in wrap fund asset growth except regional brokerages, whose total rose 460% to $460 million.
The explosive growth can be attributed partly to the number of wrap fund products springing up at banks. And bankers say customers are taking to mutual fund wraps because they find them easy to understand and invest in.
"Wrap accounts seem to fit conservative investors like a velvet glove," said David J. Schulman, national sales manager for Great Western Financial Corp.'s Sierra Trust Funds.
Mutual fund wrap accounts place customers' money in an assortment of funds that match specific investment objectives. Customers pay yearly fees averaging 1.4% of assets, according to the Cerulli-Lipper report.
Industry experts and bank executives say such accounts are a natural for banks.
Monthly sales of Great Western's Sierra Asset Manager - the largest bank-managed fund wrap, with $667 million in assets at yearend - are running at nearly $20 million a month so far this year, Mr. Schulman said. That's nearly 60% more than the fourth-quarter rate.
Success like that is spurring other banks to join in.
"There's a clear appetite among customers for a more comprehensive approach (to investing) than buying the latest, hottest mutual fund," said Timothy J. Leach, president of U.S. Bancorp's Qualivest Capital Management unit.
U.S. Bancorp, based in Portlant, Ore., offers a wrap product that mixes proprietary and third-party mutual funds. Mr. Leach said he expects to launch a retail version by yearend.
Last July, UMB Financial Corp. in Kansas City, Mo., introduced a wrap account through the bank's trust department that features its proprietary Scout Funds. The bank has since met its sales goal of $4 million, despite a low-key approach that highlighted the product's $100 annual fee.
"We haven't gone overboard marketing it," said David B. Anderson, senior vice president for investments at UMB. "We've run a few local radio ads, but nothing very heavy."
But making money with wraps is not guaranteed.
"It's difficult to get fees unless banks are successful at convincing people that their advice is really worth something," said A. Michael Lipper, president of Lipper Analytical Services.
