SALT LAKE CITY - First Security Corp., a regional banking power in the western Rocky Mountains, is counting on a combination of proprietary and private-label mutual funds to power its recently revamped 401(k) product.

Executives of the $12.4 billion-asset bank said the move to mutual funds as the underlying investment vehicle for 401(k) plans was vital to protect its 268-branch network, which stretches from Bonners Ferry, Idaho, in the north through Utah to Albuquerque in the south.

"A lot of our competition in banking today is coming from outside the industry," said Patricia A. Richards, executive vice president of the trust group. "It's coming from mutual fund and brokerage companies. And, frankly, that's where we really saw our major threat in the 401(k) market."

Industry experts endorse the strategic position First Security has staked out with mutual funds.

"If you're a small or regional bank not offering mutual funds, probably 50% of your effective market has gone away," said Robert Wuelfing, president of Access Research, a Windsor, Conn., consulting firm that analyzes the 401(k) market.

Employers now demand daily valuation and record-keeping from their 401(k) providers, and believing the bank couldn't provide those services, some existing customers began to consider alternate sources, Ms. Richards said.

Whether daily valuation makes sense for investments geared for retirement hardly matters in the grab for market share.

"I could always argue that for long-term investing daily valuation doesn't offer anything, but it's a marketing necessity," said David Master, vice president of the Optima Group, a Fairfield, Conn., mutual-fund consulting firm.

First Security manages $213 million in 401(k) plans for more than 120 employers, primarily small to midsize companies. Of those assets, $150 million reside in the bank's Achievement family of mutual funds, introduced last December to institutional customers and this spring to retail investors.

The bank plans to coax employers to transfer the remaining $63 million in 401(k) assets now managed in individual accounts to mutual funds over the next year. New 401(k) accounts are being opened solely with mutual funds, Ms. Richards said.

Until last December, the bank had serviced retirement accounts with a combination of individually managed accounts and common and collective trusts. After two years of planning, bank executives decided to convert to mutual funds.

Besides customer demand in the 401(k) arena, bank executives say the change is part of a broader strategy to increase both fee and money management revenue.

"If you want to be in asset management, you probably have to be in the mutual fund business," said David R. Wilson, an executive vice president in the capital markets division who heads the companywide task force that spearheaded the mutual-funds launch.

He estimated the direct cost of introducing the family of funds at between $1.2 million and $1.5 million, but he said he considered the price of not being active in mutual funds to be incalculable.

Industry observers concurred.

"It's a tough business to make money in, but it's tough not to play it at all," Mr. Master said. Offering defined-contribution retirement plans without mutual funds almost inevitably leads to "erosion of assets," he said.

He added that First Security concluded it could profitably offer its own brand of mutual funds by splitting the family between in-house products and private-label ones, with which scale or speciality knowledge are paramount.

First Security's investment-management subsidiary runs two stock funds, a balanced fund, and four fixed-income funds. The remaining five offerings - three money market funds and small-capitalization and international portfolios - are provided by SEI Corp., Wayne, Pa.

The notion that mutual-fund management at a regional bank should be completely farmed out doesn't square with the strengths some of the banks bring to the table, Mr. Master said. "Banks have more competence in managing money than a lot of the fund industry would like to give them credit for," he declared.

But the success of the carefully crafted plan to marry branded mutual funds to a 401(k) plan rests in its execution, First Security executives said. "It's not rocket science, but it does have a lot of moving parts," said John L. Rudisill, senior vice president and manager of the bank's mutual-fund center.

Enlisting the bank's commercial-loan officers and branch managers is crucial to attracting new assets. They are the linchpins in the bank's outreach to business owners and executives and are a key advantage in the regional bank's battle with national competitors.

"The preponderance of our employee-benefit customers are, first, bank customers," Ms. Richards said. "That's the primary source of our market. And so our relationships with the commercial-loan officers and branch managers are very important."

Ms. Richards and Mr. Rudisill court these front-line soldiers as internal customers, educating them on the features of the funds and the 401(k) plan.

To sweeten the proposition, the bank allocates a portion of fee income back to the corporate unit that provides successful referrals.

In the end, the First Security executives believe they can capture the retirement plan assets from the small to mid-level companies that dominate their market because many can't afford to hire in-house specialists to manage their retirement plans.

So First Security emphasizes service beyond merely supplying a basket of mutual-fund choices. The biggest challenges to many of these employers is navigating the myriad regulations covering retirement plans, Ms. Richards said.

First Security's experts, including 17 field representatives, are always nearby, Ms. Richards explained. In contrast, the big brokerages and mutual- fund companies concentrate their expertise in home or regional offices, she said.

"If employers want to know something about the way their plan is run, the way they need to interpret the laws and administer the benefit to employees, they can talk to us locally," she added.

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