The rapid growth of bank mutual funds may be nearing an end, industry officials at a bank securities conference in Chicago said last week.
More than 140 bankers gathered to compare notes on trends in the mutual fund business. As speakers predicted clouds on the horizon of bank mutual fund business, a Chicago rainstorm pummeled the city and closed the airport - stranding several speakers elsewhere.
"We will have turbulent times," said W. Christopher Maxwell, executive vice president of KeyCorp and one of the first speakers. "The most rapid part of our growth is behind us - it's going to be tougher as we go ahead."
W. Keith Gray, president of the Bank Securities Association, told the story of how Canadian banks had enthusiastically embraced mutual funds in the 1960s.
When market conditions soured, customers fled. Banks scrambled out of the business and most did not return for 10 to 15 years, he said.
Throughout the two-day conference, speakers made statements like "prepare for the bear." But, amid the dark predictions, speakers gave tips on how banks can advance fund business.
Even with slower growth, Mr. Maxwell said, bank funds that once turn profitable, or attain "critical mass," will continue to generate an income stream.
That profitability can be 40 to 90 basis points, he said. Though bankers could cut back on expenses and take the 90 basis points, Mr. Maxwell urged them to settle for 40 and reinvest for future growth.
And selling between 40% and 60% proprietary products, with the rest outside funds, allows for a good mix of products, he said.
"I can live with that," said Mitchell T. Grant, director of Putnam's bank distribution channel, after the session.
Mr. Grant said he came from Boston to test bankers' moods to see how much of the pie would be lost to proprietary products.
He is satisfied for now with the slice of the pie bankers intend to leave for outside fund companies, he said.
How much would put him in a sour mood?
Splitting 30% of sales with other fund companies, he said.
John DeMarco, a senior vice president with PSI, a Tampa-based research firm, told bankers to spend less time marketing to the mass market and more time on the affluent.
"One affluent mutual fund customer is worth 10 of the mass market and five of the middle segment," he said.
"The way to be profitable is to attract a small number of very wealthy people," Mr. DeMarco said.