REPORTER'S NOTEBOOK: Banks' Investment Execs Clamoring for Shelf Space

When it comes to success in the mutual fund business, most fund executives have long said that distribution is king.

Yet the rules of the sales game are changing just as many bank fund executives, relative latecomers to the business, have begun to realize just how true the maxim is.

Consumers have become increasingly interested in purchasing mutual funds from a single source acting as a conduit for an array of funds managed by different companies.

These fund "supermarkets," pioneered by Charles Schwab & Co., have spawned imitations by Jack White & Co., Fidelity Investments, and the Vanguard Group, through its discount brokerage subsidiary.

Fund executives attending an investment management conference last week sponsored by the Investment Company Institute and the Federal Bar Association listened with rapt attention as an executive from Charles Schwab & Co., extolled its program's success.

Assets in Schwab's Mutual Fund Marketplace and OneSource have climbed to more than $55 billion this month from less than $5 billion in 1990, said John P. McGonigle, a Schwab senior vice president.

That growth has drawn scores of inquiries from fund executives who want to place their products alongside the 1300 funds from 130 families already participating.

"We get a call a day from a fund wanting to get on our system, including a bank fund a week, Mr. McGonigle said.

And while everyone seems to want a partnership with Schwab, the San Francisco-based discount brokerage is getting pickier about who it lets in.

"We're on a bit of a diet as far as adding new funds," Mr. McGonigle said. "Expanding drives up our cost structure and putting a fund on our system doesn't (automatically) beget demand."

As is often the case in politics, the key to winning over Schwab lies in grass-roots support.

"We listen to retail and financial adviser customers," Mr. McGonigle said. "When we hear they're interested, then we think about adding a fund," he said.

"Absent that demand, it doesn't have a significant payback for us," Mr. McGonigle said. He advised fund executives to spend more on marketing and promotion to create retail demand before expecting Schwab to jump at a deal.

Bankers were few and far between at the conference. But their fund efforts didn't escape comment. As part of the panel discussing distribution, consultant Kurt Cerulli faulted banks for selling outsiders' funds more effectively than their own.

In general, banks have been fairly successful about attracting assets to other people's funds. But their inability to attract significant assets beyond trust conversions into proprietary funds raises real profitability issues, Mr. Cerulli said.

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