Bank of America Corp.'s asset management arm is consolidating the mutual funds it acquired with FleetBoston Financial Corp. last year and adopting Fleet's Columbia brand name for the unified fund family.
Keith Banks, the president of Columbia Management Group, said it is trying to simplify by reducing its long-term funds from 120 to between 85 and 90.
"This simplifies our story," Mr. Banks said. "Trying to explain the differences in 14 brands was difficult when we were trying to convey to clients how we can meet their needs. Simplifying the complex begins with reducing the number of funds." Fewer portfolios and a single brand will create cost savings that the company can pass on to both investors and shareholders, he said.
"Shortly, our plan is to have everything consolidated under the Columbia brand," Mr. Banks said. "Our organization going forward is Columbia Management. We want to brand everything under Columbia. We are going toward the point soon where there will be no Nations Funds. Everything will be under Columbia."
The Charlotte banking company is not alone. Several bank-owned fund companies have recently consolidated their fund units.
Mellon Financial Corp. announced in April plans to reengineer its Dreyfus asset management business during the succeeding 12 months. The reorganization was to include some client attrition, it said, but would save $20 million to $25 million a year.
The president of Wells Fargo's fund unit said last week that it had melded its funds with those of Strong, a fund company it bought Dec. 31. The consolidation reduced 160 funds to 120, all under the Wells Fargo Advantage brand, but swelled Wells' assets under management to $103 billion.
"The players in this business have been trying to get rid of some of this excess capacity," Mr. Banks said. "What we are trying to do is to make sure that the products that we have are competitive. We want to make our story simpler and provide the best."
Analysts said they expect more bank-owned fund companies to consolidate.
"I think we will definitely see consolidation. We will most definitely see more consolidation. To be honest, I can't believe it has taken this long," said Geoffrey Bobroff, the president of Bobroff Consulting in East Greenwich, R.I. "A lot of firms are still underperforming," he added. "There will be a significant reduction of funds, especially among those that are underperforming."
Burton Greenwald, a Philadelphia-based analyst at BJ Greenwald Associates, said regulatory issues prompted Bank of America's streamlining of its products. "They are focusing greater attention on asset management and compliance rather than on the products," he said, "and to do that successfully they have to scale down the number of products they are dealing with."
Mr. Greenwald also said the trend toward consolidation is a direct result of the mutual fund market's saturation in the past eight to 10 years. The portfolio paring would really just return things to normal, he said.
"There was an explosion of funds, and since the 1990s everyone has been coming out of the box with new, hot funds on a monthly basis," he said. "No one needs that many funds. The real challenge is to manage the right number of portfolios and manage expenses."
"Simplicity and simplification is the broad trend in the industry," he added.
Mr. Banks said that, since Bank of America's purchase of Fleet closed in April 2004, Columbia has been working to integrate the fund families, their operating platforms, and the vendors that they used.
The new organization will include all of the legacy Columbia Funds that were owned by Fleet and all of Bank of America's funds from both Bank of America Capital Management and the Nations Funds family. The latter was hit hard in the mutual fund scandals.
"We are right on schedule. We have hit all the targets I had hoped to hit," Mr. Banks said. "If I were to put a number on it, I'd say we are roughly two-thirds of the way along. At the end of the year we'll be 90% done. By the time we exit 2005, we'll be one organization."
Columbia Management on Tuesday announced the planned mergers of four Columbia funds into three Nations funds as part of the consolidation. The mergers involve fixed-income, growth and income, tax-managed value, and municipal money market portfolios totaling more than $12 billion.
He is working to build a "culture of compliance" within the new Columbia Management, Mr. Banks said, but the new strategy was not compelled by the trading scandal in which Nations Funds was among the first companies named, in September 2003, or by the subsequent legal battles.
(The trial of a former Bank of America broker was expected to go to a jury in New York this week. Theodore C. Sihpol 3d is charged with helping a hedge fund trade after hours at same-day prices. His attorney, Paul Shechtman, argued to the jury Tuesday that he had not believed the trading activity was illegal. Other employees at Bank of America knew about the trades, and Mr. Sihpol did not try to cover them up, the lawyer said.)
"When we decided to form a new branding strategy," Mr. Banks said, "we looked at the products. We asked the question: 'Which brand would most appropriately portray what the company was?' Columbia was chosen because the reality of it is, Columbia is our most recognized brand."
"We wanted to create an autonomous asset management organization that is part of a larger, more powerful Bank of America," he added. "To succeed in this industry, this organization has to really function in a manner consistent with the competition. The belief was, after an analysis of our brands, that the Columbia brand was preferable - not because of regulatory issues but because it created the perception that this was an autonomous organization within a broader organization."
Analysts said Bank of America has been searching for an answer as its fund unit has lost assets. Columbia had $331 billion of assets under management at Dec. 31 but $316.1 billion at March 31, a 4.5% decline. By contrast, the U.S. fund industry's assets fell 0.76% in the first quarter, to $8.045 trillion, according to the Investment Company Institute.
Mr. Bobroff said it would take time for Bank of America to establish a single, nationwide brand.
"If they could have made this the B of A Columbia Funds, it might have built a connection to the customer base, but the Fed won't allow anyone to use the word 'bank' in the name of a mutual fund," he said. "Bank of America has to overcome its customers' skepticism and engage them again. Everyone in the Northeast has gone through a transformation because of the consolidation in the banking industry. It is a difficult series of changes. It is hard to build loyalty until all the changes are over and they can reinforce the name. It is going to take time."
Mr. Banks said he believes that the fund unit's affiliation with the parent bank will allow it to grow substantially over time. "Given our size and our scale and the resources we have available, we can compete with the best in the industry," he said, and as part of a bank, Columbia has access to a variety of wealthy clients and desirable products.
Mr. Bobroff said banks aren't as well positioned as executives would like to believe for mutual fund sales.
"If you asked me five or 10 years ago, I'd have said banks are well-positioned, but banks and other intermediaries have become so homogenized that they are no better or worse in terms of being positioned," he said. "Conservative bank investors, who these fund units are relying on, are more likely to go with more conservative products like CDs or fixed annuities. Mutual funds are too variable for conservative customers, especially in this market environment."
