1st Federal of Conn. bucks local slump with winning mutual funds program.

WATERBURY, Conn. -- This old mill town has been hit hard by New England's economic slump, but that hasn't stopped First Federal Bank from building a sparkling mutual funds business.

The $2 billion-asset bank has doubled its fund sales in each of the four years8 since it launched the program. The tally for this year8 is expected to his $40 million.

In pulling off this feat, First Federal has demonstrated anew how community banks can use tried-and-true marketing strategies to become active players in the brugeoning mutual funds business.

Working with Liberty Financial Cos., a Boston-based marketing firm, First Federal has been holding a wide range of seminars and special events to whet customers' appetites.

Blood-Pressure Testing

In one recent promotion offered in conjunction with the Red Cross, area residents could discuss investment opportunities while having their blood pressure checked.

Meanwhile, the bank has systematically encouraged its platform professionals to refer customers to funds.

The sales growth has so emboldened First Federal executives that they are planning to sever the ties with Liberty and go it alone in a few years. The idea behind that move is to tighten the bank's grip on its mutual fund customers.

"We don't have absolute control of the overall customer relationship, but we're pretty close," said James C. Smith, president and chief exective officer.

Only Option at the Time

The bank began looking at mutual funds in 1986, when its branches were only in the immediate Waterbury area. At the time, programs managed by outside companies were the only viable options for the bank, said John D. Benjamin, a senior vice president who oversaw the line of business in its first few years.

"We wanted to generate fee income; we wanted our customers to enjoy a full range of products," Mr. Benjamin said.

The bank would have preferred total control over the program. "It's like half a loaf, but it's better than having no loaf at all," Mr. Smith said.

Bank-Oriented Program

Mr. Benjamin settle on Pamco Securities and Insurance Services Inc., Encino, Calif., to market through First Federal's branches because of its bank-oriented program.

Pamco bore all start-up costs and fielded two representatives to serve what were then just eigth branches. In 1991 Liberty merged with Pamco.

First Federal executives say they are pleased with the program's sales and the attention Liberty executives pay to the bank. Top-level Liberty officials regularly call bank officers, Mr. Benjamin said.

Still, the bank wants more control over the work force and the customer relationship - and a better return on the business, said Mark S. Mitchell who runs the program in the branches.

Lessons Learned

That means bringing it inhouse, he said. Bank officers say that using Pamco and Liberty has helped them learn the business. Now, helped by acquisitions, the bank thinks it is achieving the size and strength needed to handle morre marketing reponsibilities directly.

Webster Financial Corp., the bank's parent, now has 38 branches. In 1991 it gained 16 branches in northern Connecticut with the acquisition of Suffield Savings. A year later it acquired First Constitution in New Haven, gaining 14 branches in the southern part of the state. This September, Webster announced an agreement to acquire Bristol Savings Bank, which has six branches around Bristol.

As investment product programs are rolled out in the newest branches, the sales base will grow. As it does, the bank hopes to build its customer services.

"The products change and evolve, and what we will do is continually look for ways to add value to what we provide," said Mr. Mitchell, who worked for Bank of New York in Manhattan before joining First Federal in 1986.

Seminars for Customers

One of the most successful efforts has been seminars held to educate existing clients about investing, Mr. Mitchell said.

The bank advertises seminars on topics like "Are you paying too much for taxes?" That seminar, held in September, featured door prizes and refreshments in addition to a talk by a Dreyfus Funds vice president. Seminars generally draw 15 to 50 customers into a nonthreatening atmosphere, Mr. Mitchell said.

"They are successful in that they attract people who ask questions in a hypothetical way in a group settin," Mr. Mitchell said.

Afterward, customers are asked if they'd like to meet with an investment representative.

Another means of introduction was taking customers' blood pressure in early fall. "Are Taxes Raising Your Blood Pressure?" asked a flier. "Get your blood pressure checked by the American Red Cross [and] talk with a Liberty Investment executive about tax-free investment opportunities," it added.

Questions About Loads

Most First Federal Customers are learning more about investments, Mr. Mitchell said. Most recently, many have begun to ask about no-load funds after reading Money magazine. That doesn't bother Mr. Mitchell.

Rather than disprove the idea that no-loads are better, First Federal and Liberty emphasize the need for advice.

"Loads and the number of mutual funds will come down, but there will be enough choices to provide adequate confusion to the customer," Mr. Mitchell said, "We want to deal with customers who need and want advice, because we cannot add value to someone who's going to call a fund directly and make their purchase."

As part of that effort, First Federal signed onto the Stein Roe Counsellor, an asset allocation plan offered by Liberty subsidiary Stein Roe & Farnham.

Stein Roe Counsellor diversified holdings in the Stein Roe no-load fund family for people with at least $50,000 to invest. Customers pay about 1% annually for investment advice. Growing interest in asset allocation should bring new customers to the bank, said executives.

Referrals from platform bankers are another key source of business. For each referral from the platform that results in an appointment, First Federal pays a $7.50 fee. And, each investment representative, often serving several branches, is expected to receive 15 referrals a week.

Word of mouth among customers can also help. "Ten percent of our Yankees give referals - because I'm told that Yankee's have no friends," Mr. Mitchell joked at a recent conference in New York.

Open House

A Yankee himself, Mr. Mitchell can laugh at the comment, but he's serious about building referrals.

To give customers an opportunity to meet with investment representatives, that bank also sponsors "Liberty Days" in each branch. On a clear autumn day in November, Liberty sales representative Benjamin T. Brown sat in an office inside a Watertown branch meeting with customers on Liberty Day.

Those visiting the branch, including one hungry man with soiled clothes and unkempt hair, enjoyed baked goods.

Mr. Brown, a four-year veteran at First Federal, said he has noticed that customers have become more sophisticated in dealing with investments. While his average customer is in the late 50s, he'd like to establish relationships with more baby boomers.

"You never see them in the bank," he sighe. "They just use the ATM."

The key to success in the bank environment, Mr. Brown said, is low employee turnover. As he's worked in the branches, customers and the bank employees have come to know and trust him, he said

He said he has one advantage some of his Liberty colleagues working for other banks lack: "You realize how fortunate you are to be at a bank where top management supports the business."

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