Banks Adding Fees to Mutual Funds

More and more banks that manage mutual funds are adding up-front fees in hopes of bolstering sales.

Bank units of Chase Manhattan Corp., NBD Bancorp, and Norwest Corp. have all recently added the one-time fees, commonly known as loads. Citicorp is also considering such a move.

Though banks are not permitted to collect such fees, they expect the commissions to encourage brokers to market the bank funds more aggressively.

The fee additions signal the maturing of the bank mutual fund business and a step toward more aggressive marketing, according to industry experts.

Shifting to Activist Mode

"The implications are that the passive-offering stage of bank distribution is drawing to a close," said A. Michael Lipper, president of Lipper Analytical Services Inc., a New York company that tracks the mutual fund industry. If banks want to grow, "they're going to have to learn how to sell."

Most banks have offered their mutual funds through broker-dealer subsidiaries and by direct mail, Mr. Lipper said. But sales have been lackluster, he said.

In adding loads to their funds, banks are hoping to spark sales and compete better with nonbank companies. According to Mr. Lipper, about 66% of all mutual funds carry loads, compared with 41% of bank-managed funds. The number of banks charging fees has increased dramatically over the past two years, he said.

Among the banks that have long had loads on their funds are First of America Bank Corp., Kalamazoo; U.S. Trust Company of New York; PNC Financial Corp., Philadelphia; C&S/Sovran Corp., Atlanta and Richmond; and Wells Fargo Co., San Francisco.

Support for No-Load Notion

Some banks, however, such as J.P. Morgan & Co., profess no interest in adding fees. These banks subscribe to the theory that no-load funds are more appealing to investors.

Citibank, which ranks 10th among banks in mutual-fund assets under management, put a 4% fee on its International Equity Fund when it was introduced in January 1990. It is seriously considering placing loads on its five domestic equity and bond funds, said Claudia R. Roux, vice president of funds in Citibank's private banks investment division.

"This is a very controversial issue within the bank," Ms. Roux admitted.

"When you put a load on something, there's such a difference from a consumer point of view," she said. "It's a fairly dramatic change. We really want to make sure that it makes sense from a strategic point of view."

Carrot-and-Stick Approach

The primary purpose of the loads would be to provide incentive to the company's broker-dealer subsidiary to sell the funds managed by the bank, she said. Along with Citibank funds, the broker-dealer sells funds managed by other companies.

Chase added a 4.5% fee on all eight of its Vista funds on Jan. 1, said Kenneth A. Mills, vice president for the New York bank. The bank, which markets its funds primarily through GNA Securities brokers in its branches, has expanded its sales efforts to 300 branches in New York State in the past year.

Detroit-based NBD tacked a 4% load onto four new bond and equity funds on June 3, said Richard L. Foersterling, first vice president and director of business and product development for the bank's trust division. NBD had only managed money-market funds, which do not carry loads because of their thin margins.

At Norwest, the board of its Prime Value funds voted Wednesday to add 4.5% loads on a stock fund and a bond fund. A third fund already carried a load.

"We haven't had loads because bank products generally don't have sales commissions attached to them," said Jay Kiedrowski, senior vice president and manager of Norwest Investment Trust.

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