Many bankers point with pride to the phenomenal growth of proprietary mutual fund families. But do the numbers really meant that banks are snaring hordes of new customers?

In March, bank proprietary funds had grown to $181 billion, from $79.9 billion at the end of 1990, according to Lipper Analytical Services. However, the majority of the increase may have come from conversions of trust assets rather than sales to new customers.

Just how much of the fund assets came from conversions is hard to gauge. Mark Adorian, a managing partner with Micropal, a mutual fund tracking firm based in London, maintains the figure could be as high as 75%.

Clouding the Issue

Others guess that it could be closer to 50%, but no one knows for sure because many banks are reluctant to disclose the details.

NationsBank, for instance, last week trumpeted in a news release that its Nations Funds have passed the $10 billion-asset mark. But company officials could not be reached for comment on how much came from trust sources.

In a trust conversion, a bank that administers collective trust funds or employee benefit plans exchanges those assets for shares in a mutual fund.

Something to Prove

While most believe that using trust money to build proprietary funds leads to profitability, it clouds the issue of how well banks are doing.

"Banks still have not demonstrated a strong growth potential," said Geoff Bobroff, a Lipper analyst.

As trust sources for asset growth dwindle, bankers and consultants are beginning to consider what level of sales will keep a fund family healthy. "That's the $64,000 question right now," said Rolland Johannsen, senior partner with Furash & Co., a Washington based consulting firm.

To Mr. Johannsen, the first task is to build enough assets so that management fees bring profitability. "You'd like to have it all from trust," he said.

Banks are usually counseled against starting mutual funds unless they have at least $1 billion in trust assets to convert.

Topping $100 Million the Key

"If you can get above $100 million in each fund you're looking at breaking even," said Kurt Cerulli of Cerulli Associates, a Boston consulting firm specializing in mutual funds. "You've essentially gotten through the dangerous phase and as an entity you can survive."

"In this environment if you're not growing sales by 15% or 20% a year, it probably shows that you're not getting the attention of your client base that you should," he added.

Without that sort of growth bank officers may wonder why the bank converted assets and got into the business in the first place, Mr. Cerulli said.

How long a grace period does a bank have before sales need to start growing?

Grace Period of 1-5 Years

Bankers and consultants involved with mutual funds cite periods from one to five years.

"It should start to happen within the first 15 months," said R. Gregory Knoft proprietary Union Bank's proprietary Union Investor's Funds.

The San Francisco-based subsidiary of the Bank of Tokyo rolled out its funds about a year ago. The bank plowed a total $800 million of trust money into its eight funds, then grew the funds to $1.4 billion through sales. Funds eligible for conversion have been depleted, so sales will have to fuel any future growth, Mr. Knopf said.

"You have to plan how you're going to grow your family or you'll stagnate," he said. "It's business by plan."

Liberty National Corp., in Louisville, Ky., has a blueprint to sell that includes intensive sales training for its employees.

In February, the bank converted $160 million of trust money -- most of it from employee benefit accounts -- into its four Trademark funds.

Since then, the bank has succeeded in adding an additional $105 million in assets through retail sales. With sales kicking in strongly, the bank has no plans for more block trust conversions, a spokesman said.

Shortage of Results Hurts

One impediment to achieving strong retail sales quickly is investors' desire to analyze long-term performance records. Most bank proprietary funds have records that are shorter than five years, whereas many mutual fund companies can show lengthy records.

One of the more established bank fund families is Chase Manhattan Corp.'s Vista funds, which also produced strong performance results. However, retail sales are just now heating up, bank officers said.

That can be a warning to those whose record, doesn't sparkle as brightly.

"I would submit that if it takes Chase to develop a good track record in five years, it's going to take the rest of us a lot longer," said W. Christopher Maxwell, executive vice president of Keycorp, Albany, N.Y.

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