Norwest Corp. has introduced a mutual fund wrap account in a bid to attract a larger and steadier stream of fee income for its investment units.
Dubbed WealthBuilder, Norwest's wrap program allocates money into several mutual fund portfolios chosen to match a customer's particular investment objective. Norwest then charges a percentage of the assets to manage the account.
Norwest's product requires a $50,000 initial investment and charges customers between 0.75% and 1.25% of assets, depending on how much is invested.
"Customers have been demanding a way to consolidate their investments and make investing simpler, and this is a way to do that while building our relationship with the customer," said Lee Chase, vice president in charge of the Norwest Advantage Funds.
In introducing its first wrap program, Norwest has joined other banks struggling to attract and retain more assets in their proprietary mutual funds.
Currently, about 10 banks have their own mutual fund wrap products while an equal number sell similar wrap accounts developed by third-party firms, according to the Optima Group, a Fairfield, Conn., consulting firm.
Norwest's entry into the market comes at a time when assets in mutual fund wrap accounts are rising. According to Cerulli Associates, Boston, such assets climbed 39% in the first half of 1995 - to $17 billion.
Ms. Chase said that 90% of the management fee from Norwest's program will go to the bank's broker-dealer, which will sell the wrap account.
The rest of the fee will pay for distribution and marketing costs. She expects that more than 25% of mutual funds sold through Norwest's broker- dealer will be in wrap accounts.
Currently, Norwest is offering its wrap account to customers in Minnesota, Colorado, Arizona, Iowa, Nebraska, and Wyoming. The product will be rolled out in other markets over the course of the year, Ms. Chase said.
Norwest customers can choose from five investment objectives, ranging from conservative to aggressive.
Assets in the wrap account are distributed in mutual funds managed by Norwest, Fidelity Investments, Putnam Investments, Dreyfus Corp., or Federated Investors.
Kenneth Hoffman, president of the Optima Group, estimates that at least $250 billion could flow into wrap products by the end of the decade, but right now banks control only about 4% of all assets in wrap accounts.
"The time is right for wrap products, but very few banks have taken advantage of their market potential," Mr. Hoffman said.
The low participation by banks, could be blamed, in part, on the lengthy process of getting approval from regulators to offer the products, Ms. Chase said.
Because bank broker-dealers help choose where a customer's money is distributed within a wrap account, Ms. Chase explained, they have to be registered as investment advisers in each state the wrap products are sold.
But some bankers said that despite the hassles, mutual fund wraps will become a permanent fixture at banks in the near future.
Wrap accounts "really attract the emerging affluent, the kind of customer that can grow with you over time," said R. Gregory Knopf, managing director of Union Bank's Stepstone Funds.
