Banks that sell mutual funds were hit hard by a sales slump in July, and August provided little relief.
Mutual fund sales declined in July for the third month in a row, according to the Investment Company Institute.
And bankers, who had said they were faring a bit better than the industry as a whole in June, now say their sales are mirroring the industry trend.
At Northern Trust Corp., for example, sales in July were less than half the June level.
"The volatility in the market definitely brought people - particularly bank customers, who tend to be more conservative - to the sidelines," said Lloyd Wennlund, national sales manager for Northern Trust Securities Inc., the Chicago-based bank's brokerage affiliate.
August is shaping up to be a stronger month for mutual fund sales, he said.
Mr. Wennlund noted that customers are also expressing renewed interest in individual securities, such as bonds, or fixed annuities, which offer a guaranteed rate of return.
During July, fresh inflows into mutual funds declined to $5.9 billion, versus $7.7 billion in June, according to the Investment Company Institute.
This July's sales figures are just a quarter of July 1993's, when $23.1 billion flowed into mutual funds. The figures reflect net new sales, which include fresh investments but exclude reinvested dividends and redemptions.
Rising interest rates spurred heavy outflows from bond funds, which have been extremely popular with bank customers. Investors pulled $1.9 billion out of these funds in July, up from a $114.8 million outflow in June.
That is a sharp reversal from last July, when investors pumped $13.3 billion into bond funds.
Some of the money appears to be flowing back into certificates of deposit.
Bank IV in Wichita, Kan., has become more aggressive with its CD rates; that has "put a damper" on the bank's mutual fund sales, said Martin Istock, a senior vice president.
Mr. Istock said mutual fund sales were down about 20% in July from the previous month.
BHC Financial, a Philadelphia securities company that was started by a consortium of banks, is seeing the effects of rising CD rates in its brokerage unit.
As banks CDs come due, fewer customers are rolling the proceeds into uninsured investments such as bond funds, said Melissa Bueltel-Rice, a senior vice president for sales at BHC's TradeStar Investments unit in Houston.
She said TradeStar's mutual fund sales were the lowest they had been in a long time in July, and August was a repeat performance.
Ms. Bueltel-Rice attributed July's sluggish sales to poor mutual fund performance and the season.
"Every fund got beat up," she said, and the downward sales trend was "accentuated because of the summer doldrums."
But she said she sees signs of a pickup in mutual fund sales, thanks to the stock market's recent rally.
"The curve is starting to come up," Ms. Bueltel-Rice said.
Indeed, stock funds fared far better than bond funds during July, taking in $7.8 billion, compared to $7.9 billion in June.
That is about 25% below last year's shies of $9.7 billion in July.