As investors become less inclined to pay sales fees to their brokers, some banks are cautiously exploring the idea of offering no-load mutual funds.
Keycorp and BankAmerica Corp. are among the banking companies that are evaluating selling proprietary no-load funds by telephone, according to industry sources.
"You will see major banks rolling out no-load programs in the next six months," said Kenneth Hoffman, president of Optima Group, a consulting firm in Darien, Conn.
A handful of banks, including Fleet Financial Group, BayBanks, and Bank of Boston, have offered no-load mutual funds for several years. These New England institutions have had a compelling competitive reason to offer no- loads, since they are in the backyard of Boston-based mutual fund powerhouses like Fidelity and Putnam. Earlier this year, Signet Banking Corp., Richmond, Va., purchased a no-load fund family.
But these institutions are exceptions in the industry. Most banks have long contended that their fund customers want and need investment advice, and they have built up sales infrastructures which reflect that conviction. Banks traditionally have used sales fees of 3% to 6% to compensate brokers and to pay for the distribution and administration of their funds.
Yet some in the industry are recognizing that the marketplace is increasingly interested in a less expensive way of purchasing funds.
Indeed, no-load funds are gaining market share. They accounted for 44% of all mutual fund sales in the first five months of 1995, compared with 41% in 1994, according to the Investment Company Institute.
The problem, however, is that banks interested in establishing a no-load fund presence are moving into unfamiliar territory. They would have to rethink their systems of distribution, a process that might involve expenses for establishing a direct market apparatus.
"The likelihood of banks being successful selling no-load products to the more sophisticated investor is very small," added Avi Nachmany, an analyst at mutual fund research firm Strategic Insight in New York. "I doubt that the bank culture and the bank client have the right mind-set for the direct distribution channel."
Mr. Hoffman said that banks could use third-party companies to handle the telemarketing, direct mail solicitations, and back-office operations. But the bank would need to beef up its technology so it can segment its customer base as a prelude to direct marketing efforts.
Right now, the issue of whether to go no-load is a sensitive one. BankAmerica declined even to discuss reports that it is evaluating no-load funds.
Since May, Keycorp has been selling four no-load funds managed by an outside firm, said Christopher Maxwell, executive vice president and head of investment services at the Cleveland-based banking company. These are part of the SBSF fund family run by Spears Benzak Salomon & Farrell Inc., a New York money management firm that Keycorp acquired last November.
The bank is gearing up a telephone sales center to sell both Keycorp's proprietary Victory funds and the SBSF funds, a spokesman for the bank said.