Banks are stepping up efforts to boost their wrap fee accounts asset-gathering capability.
One, Wells Fargo & Co., is integrating one of its mutual fund wrap programs with its separate-account program in a bid to reel in more affluent investors. Meanwhile, the KeyCorp retail brokerage subsidiary McDonald Investments plans to make more asset-allocation models available to its wrap-fee customers, and First Union Corp. is putting more into this business.
Bank executives say that these fine-tunings can help their companies attract a rapidly growing audience: investors who want help in choosing where to invest, whether in funds or individual stocks.
Mutual fund wrap programs are geared to less-affluent investors. These programs have lower account minimums typically $10,000 to $25,000 and only invest in mutual funds. Investors are charged an ongoing fee, usually 1% to 1.5% of assets in their portfolio, rather than a per-trade commission.
Wells Fargo plans to merge its Wells Advisor mutual fund wrap program, which was inaugurated in 1998, with its Wells Select separate-account program by May and to retain the Select name for the new product, said Jerome Paolini, director of investment consulting services at the San Francisco company.
The result, he said, will be a fee-based brokerage program with $1 billion of assets under management. It will have 40 managers for portfolios consisting of as many as 200 mutual funds from 80 fund families, and it will double Wells wrap-program assets by yearend, Mr. Paolini said.
Wells currently charges 1.5% of assets for mutual fund wraps with a minimum of $10,000 and 3% for separate accounts, which carry $100,000 minimums. Customers using the new Wells Select for both a mutual fund wrap and a separate account portfolio will pay the higher fee; those using only the mutual fund wrap will pay the lower fee.
Meanwhile, Wells Portfolio Adviser program, its first wrap offering, has $300 million of assets under management. The seven-year-old program will remain a stand-alone, Mr. Paolini said.
Bank executives and others say three things have driven these programs growth in the past five years: the rising stock market, investors growing desire for guidance, and retirement plan rollovers.
Bill Dent, senior vice president in charge of asset advisory services for McDonald Investments, projects that McDonalds mutual fund wrap account assets, now $500 million, will grow 33% this year in part because of availability of a wider array of allocation models.
Keys program carries an assets minimum of $25,000 and charges yearly fees of 1% to 1.5% of assets. Kathy Dennis, head of Key Asset Management, in Cleveland, said banks will have to offer more variety in their wraps by adding straight stocks or alternative investment products, for instance if they are to compete with brokerages for customers.
To be successful, you need more of a wrap product than just a pure clean mutual fund wrap, Ms. Dennis said. Once an investor has upward of $100,000, it makes sense to look at other wraps that go beyond just funds.
Still, banks are increasingly viewing their mutual fund wrap programs as important asset-gathering vehicles, and aim to close some of the distance between their programs and those from industry leaders such as SEI Investments, of Oaks, Penn., and Bostons Fidelity Investments.
But even with all this growth, bank-managed mutual fund wrap programs are still playing catch-up with the large mutual fund houses. Banks currently have 5% of the $126 billion mutual fund wrap market, said Paul Fullerton, an analyst with Cerulli Associates in Boston.
First Union, which according to Cerulli Associates is one of the nations top 10 mutual fund wrap providers, has made substantial commitments to this business through its Wheat First Union subsidiary.
Daniel McNamara, director of consulting services at First Union, said he expects the Charlotte, N.C., companys FundSource mutual fund wrap program, which has $3.5 billion of assets under management, to post 20% growth for 2001 even if the market as a whole stays flat.
Much of the programs growth since its inception in 1995 has come from the rollover of retirement plans, Mr. McNamara said. Investors who gravitate to FundSource are comfortable with mutual fund investing but overwhelmed by the amount of information out there, he said.
First Union charges up to 1.5% of assets, with breakpoints kicking in as assets grow, and its account-size minimum is $25,000.