Five years ago, conventional wisdom said retail customers would only buy mutual funds and the like directly from providers.
Now, sales of these products through banks, broker-dealers, and other intermediaries are exploding.
Outside sales channels have become a "bastion" at all fund companies, says Geoff Bobroff of Bobroff Consulting Inc. in Providence, R.I.
Mr. Bobroff said this development should not be just a fad, since roughly two-thirds of investors want some sort of help in financial planning.
It does not appear to be a fad at Kansas City, Mo.-based American Century Investments, whose nonqualified sales have taken off because of the intermediary market. Its intermediary channel has accounted for about 80% of new sales in 2000 and is projected to end the year with 40% sales growth.
Deanna Basler, head of the company's bank channel, expects that level of growth to continue next year.
As investors "get richer, they need more advice," she said.
To cope with this increase, American Century plans to expand its product line and its bank sales staff in 2001.
Other predominantly no-load fund companies making a concerted effort to reach investors through such intermediaries include Scudder Investments, Strong Investments, and Janus Funds.
Ms. Basler said American Century plans to add several bank wholesalers by February and to develop new products, such as classes of shares geared for intermediaries. In May it is slated to add class C shares to about 20 funds. Investors in class C shares pay a small percentage of assets under management each year, rather than a load.
American Century has sold funds with 12b-1 fees for years, but this will be its entry into C shares, Ms. Basler said. She said the fee - which has yet to be determined - will reflect the company's belief that "advisers offer investors a valuable service."
The company also plans to offer separate accounts for individuals and to expand its subadvisory business to institutions in 2001, Ms. Basler said.
She said having a subadvisory business is crucial to winning business from banks because many banks use outside managers to give investment advice to their proprietary funds. In addition to helping banks in investment areas where they may not have expertise, subadvisories can help fund companies foster better relationships with bank salespeople and the banks themselves, Ms. Basler said.
American Century also plans to have its wholesalers act as sales consultants to banks both on the retail and wholesale levels. They will work closely with branch salespeople to train them in selling fund products, Ms. Basler said.
The salespeople will also help banks determine the best combination of American Century funds to feature, said Ms. Basler, who noted that one reason for the extra hires is that larger banks need more attention from fund companies.
One of American Century's bank-sales intermediaries is Chase Manhattan. Ms. Basler said her company is not ready to talk about the impact of Chase's deal to buy J.P. Morgan, which owns 45% of American Century, but the analyst Joseph Hershberger at Putnam Lovell Securities Inc. in New York said the combining of Chase and Morgan might open doors for American Century in areas such as global private banking.
