As banks seek to broaden the array of investment products they offer customers, several have added no-load mutual funds to their menus in recent years.
Now one banking company, Cleveland-based KeyCorp, is getting out of the no-load market after a three-year flirtation.
KeyCorp has decided to stick solely with its sales fee-based fund complex, the Victory Funds, said Kathleen Dennis, a senior managing director with Key Asset Management. Next month, the bank plans to roll its eight Key SBSF no-load funds into its Victory complex.
Two factors are driving the decision, Ms. Dennis said. For one thing, the bank found it too expensive to develop and market the no-load funds to customers, especially given the recognition already afforded the Victory name, she said.
For another, KeyCorp has moved its investment management strategy toward a relationship-based system, which offers the investor financial planning, asset allocation, and education, she said.
KeyCorp is not alone in pursuing a hand-holding strategy, said Avi Nachmany, director of research at New York-based Strategic Insight. Mr. Nachmany said 1997 saw a broad shift away from no-load funds toward fee- based advice.
"Everyone wanting to buy already has a relationship and the new buyers are all going through the (fund) marketplaces," he said.
Consumers are also influencing this change, Mr. Nachmany said. As some investors approach retirement age, they request more guidance, he said.
Not all banks are abandoning the no-load concept. Citicorp, BankBoston Corp., and Star Banc Corp. are among the banking companies that are pursuing a no-load strategy.
Next month, Citicorp expects to roll its 20 Landmark Funds-some of which carry a sales fee-into a new no-load program called CitiFunds, a bank spokeswoman said. The bank will also unveil three new no-load portfolios under the CitiFunds name.
Citicorp also has four no-load funds in its CitiSelect complex, launched in 1996. After the CitiFunds conversion, none of the banking company's $10.55 billion worth of proprietary funds will carry a load, the spokeswoman said.
The same is true for BankBoston Corp. None of that banking company's 16 proprietary funds, the Boston 1784 Funds, have a sales fee, said Allen W. Croessman, director of the bank's mutual fund division.
Star Banc, Cincinnati, is a recent convert to the no-load fund world. But it is stepping cautiously.
"The secret to success has not been to go head-to-head with (large) providers," said Peter Sorrentino, vice president and director of research at the bank.
The bank, which has $3 billion of fund assets under management, has two no-load portfolios. In June, it launched the Star Select REIT fund, which now has $44 million of assets. In December, it began offering a no-load fund that mirrors the Standard & Poor's 500 stock index.
Mr. Sorrentino said the response to the REIT funds exceeded the bank's expectations. But he said marketing no-load portfolios is more expensive than selling fee-based products.
"Not having a sales force, we've had to run some expensive advertising," he said.
Star Banc is now looking at launching a B class of shares for its REIT fund, which will have a deferred sales charge or back-end load. The new share class would be sold through broker-dealers, where demand for REIT portfolios is brisk.
KeyCorp first got involved in no-load funds when it acquired New York money manager Spears, Benzak, Salomon & Farrell Inc. in 1995. It inherited four no-fee funds and created another four to explore the concept further, Ms. Dennis said.
KeyCorp's Victory Fund family has a hefty $10.6 billion of assets under management, compared with $650 million in the Key SBSF family.
Like Citicorp and BankBoston, KeyCorp offers its customers third-party funds with sales loads. Key also offers third-party funds without loads through a deal with San Francisco-based Charles Schwab & Co.'s OneSource fund program.
