By most estimates, big brokerages would make money if they sold their mutual funds through banks.
So, some in the industry are wondering, why aren't more doing it?
The answer might be in the uneasy relationship banks and brokerages still have-and what the public perceives as an odd coupling.
Brokerages selling funds through banks "is an idea whose time has come," said Mr. Charles M. "Chick" Vincent, head of research at PNC Institutional Investor Services, Philadelphia. Such an arrangement would benefit banks and brokerages-as well as customers, who would have more choices, he said.
One problem-but not an insurmountable one-is disclosure, Mr. Vincent said. You have to go the extra mile to ensure that customers understand the risks, he said.
Customers tend to think bank employees are there just to help, Mr. Vincent said, but they understand that brokerage is about selling. So even though regulators don't require it, "you have to physically separate tellers in one section and on the other side of the branch have your brokerage."
Selling through banks would give brokerages wider distribution for their products, Mr. Vincent said. The banks, in return, would get a wider menu of funds to sell, as well as fee income.
"There's a great need for funds with the demand from baby boomers. You need a sophisticated product and a broad range," he said.
But some feel the arrangement serves brokerages better than banks.
Selling brokerage funds through banks gives banks unwanted "in-channel competition to wrestle with," said Timothy J. Leach, president and chief investment officer at Capital Management Inc., Portland, Ore.
"On the retail side, banks are trying to give advice and offer products. Then brokers offer advice and products outside the bank channel. There is, I feel, a real problem with strategy there," said Mr. Leach. "If banks just work with a mutual fund company, there's less conflict."
Still, banks seem to eager to strike such arrangements. "Banks hit a revenue wall, and lending's so competitive," said Mr. Vincent. "Brokerages are good at selling products-Dean Witter, Merrill Lynch, Smith Barney all have good systems. But most brokerages don't have distribution" that matches or betters bank branches.
Last month, Charles Schwab & Co., San Francisco, kicked off a plan to offer its OneSource fund supermarket through KeyCorp, Cleveland, and this summer will launch a sales program through First Union Corp., Charlotte, N.C.
John P. McGonigle, founder of Schwab's widely copied OneSource, told bankers at a recent conference that they wouldn't get such an arrangement without already posting strong numbers.
For the most part, brokerages selling mutual funds through banks have been a rare breed.
Investment Management and Research Inc., a unit of the St. Petersburg, Fla., brokerage Raymond James Financial Inc., sells mutual funds through banks.
And a number of independent financial planners-including Financial Network Investment Corp., Torrance, Calif., and Private Ledger Linsco, Boston-sell packaged mutual funds through banks, said Burton J. Greenwald, a Philadelphia mutual fund consultant.
But the major brokerages have not jumped into the fray. Smith Barney, a unit of Travelers Corp., indicated in January it might sell mutual funds through banks.
Smith Barney is "seeking to take a page out of Schwab's book," said Mr. Greenwald. Yet three months later, the firm has yet to detail plans.
