Bryn Mawr Bank in Pennsylvania has launched a proprietary mutual fund in hopes of broadening the scope of its wealth management operations.
The $3.4 billion-asset company plans to leverage its BMT Multi-Cap Fund to offer “strategic investment advice” to the mass market, CEO Frank Leto said. Bryn Mawr’s wealth management division, which has 120 employees and more than $12 billion in assets under management, had been limited to courting courts clients who meet its minimum asset requirements.
The fund “streamlines our investment process and will allow us to serve even more clients, expanding our opportunity to become a trusted adviser to more investors,” Leto said.
The funds, which were popular in 1992, when a record 23 banks opened funds, are largely anachronistic today. Many of those pioneering banks eventually closed their funds after being hit with the double whammy of fierce competition and heightened regulation.
Banks owned just 4% of the more than 16,800 investment company complexes — composed of funds and the entities that advise and administer them — operating in the United States last year, according to the Investment Company Institute in Washington. A "vast majority” of those funds are tied to larger banks, a spokesman for the group said.
It is “rare” for a small bank to have a proprietary mutual fund, added Daniel Wheeler, a lawyer at Bryan Cave in San Francisco. “In my view, operating a mutual fund that’s consumer-facing is sort of the big leagues. It’s the hardest thing you can do in wealth management.”
In addition to competition and costs, regulation is a concern for banks that operate mutual funds. Operating them subjects banks to the regulatory regime set forth by the Investment Company Act of 1940, which comes on top of the already onerous regulatory burden they face in their core banking business.
“You’ve got all the record-keeping and compliance and annual audit machinery of running a full-fledged, 40 Act mutual fund,” Wheeler said. “You absolutely have to be prepared to handle all the multiple aspects of that.”
While community banks typically eschew mutual funds, more institutions are showing a general interest in wealth management.
First Commonwealth Financial in Indiana, Pa., agreed in October to buy DCB Financial, a registered investment adviser in Lewis Center, Ohio. WSFS Financial in Wilmington recently bought two investment companies, and Salem Five Financial in Massachusetts bought Stumm Financial late last year.
There is potential upside if Bryn Mawr can successfully navigate the regulatory environment and take share from other firms. Mutual funds in the United States held more than $16 trillion last year.
Bryn Mawr’s wealth management operations brought in $19.1 million of fee income in the first half of 2017, representing a 5.5% rise from a year earlier.
Having a fund “expands our distribution channels in a couple of ways,” said Stephen Wellman, chief operating officer of Bryn Mawr’s wealth management division. “We can [market] it in a couple of ways: on 401(k) platforms, through other financial intermediators and to the general public.”
“We really look at this as being a differentiator,” Wellman said.
The BMT Multi-Cap fund should distinguish Bryn Mawr from many other banks, Wheeler said.
“Most community banks I work with … are much less ambitious,” Wheeler said. “We’re counseling them on the very basics. … I have not worked with a community bank that has even approximated the sophistication that Bryn Mawr apparently” possesses.
As Bryn Mawr builds up its mutual fund, another bank is planning an exit.
The $4.4 billion-asset Washington Trust Bancorp in Westerly, R.I., announced plans in June to close the New Century family of mutual funds it has overseen since it bought the funds’ parent, Weston Financial, in 2005.
The six New Century funds, which hold about $238 million in assets, according to the Federal Reserve, stopped accepting new purchases on June 30. Fund managers are expected to release the results of a shareholder vote on the liquidation plan later this week.
Efforts to reach a Washington Trust representative were unsuccessful, but a July 18 notice to investors listed the “modest size” of the funds, along with limited opportunities for additional growth, as the reasons for the planned closing.