Fund Companies to Launch Bank Sales Trade Group

Several of the mutual fund companies that lead the pack in sales through banks plan to form an association aimed at increasing banks' share of the fund market.

The organization would be set up under an existing trade group for the mutual fund or banking industry and would be open to banks and third-party marketers, a fund company executive said.

Representatives of the fund companies intend to present the plan to an industry group-they have not decided which one-by yearend.

The idea arose at an unprecedented and unpublicized gathering in March of a dozen fund company executives in charge of bank distribution, according to two attendees who asked not to be identified.

"Our common goal is to get banks to attain a larger share" of the market, said the head of one fund company's bank sales division. "We are trying to figure out ways collectively" to do that.

Industry observers said such an initiative could mark a significant step in the evolution of the bank fund sales business.

"It is a key moment for the bank channel, because they're acknowledging untapped opportunities and recognizing that there are some variables that could, if improved, significantly increase sales," said Andrew Guillette, a consultant with Cerulli Associates, Boston.

Banks have fallen short of widely accepted projections made in the early part of the decade that they would control 30% or more of the mutual fund market by 2000.

Last year they accounted for about 15% of the market, according to Cerulli.

Fund companies want to sell their products more evenly through the four main intermediary distribution channels-wire houses, regional brokerages, financial planners, and banks-to have a balanced distribution system, Mr. Guillette said. In short, they want to hedge their bets, he said.

The association would be launched under an existing trade group, because it would be easier to get up and running that way and would avoid antitrust problems, the executives said.

Fund company executives would not say which trade groups they might approach, but two of the most prominent are the Investment Company Institute, the mutual fund industry's main association, and the Bank Securities Association, its counterpart for bank brokerages.

Fund company executives in charge of bank sales regularly discuss the industry on an informal basis. But this select gathering-held in March at a ski resort in Snowbird, Utah -was the first formal brainstorming session of its kind.

Several ways to increase banks' market share were discussed, including encouraging banks to expand their sales forces, raising investor awareness of funds' availability through banks, and finding ways to motivate banks' sales forces.

A trade group could put those initiatives into effect, they said.

Kenneth Kehrer, a consultant in Princeton, N.J., said it is impressive that competitors for bank sales are cooperating, but he warned that increasing bank market share will be difficult at a time when all distribution channels have robust sales.

"I think they can improve bank sales of funds," he said. "Whether they can influence market share or not is the question."

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER