When Franklin Resources - the nation's fifth- largest mutual fund company - set up its financial institutions division in 1992, executives were swept up in a frenzy over banks.

Spurred on by predictions that banks would one day contribute half of the total mutual fund sales through financial intermediaries, Franklin and its competitors banged on as many doors as they could.

But by 1994, reality had set in.

"We are no longer as blindly optimistic as we were," Gregory E. Johnson, president of Franklin Distributors, the company's main sales arm, said in a recent interview.

Banks are proving tougher to crack than anyone expected, and it doesn't help that the merger wave sweeping the banking industry is disrupting many fledgling programs, he said.

Far from throwing in the towel, however, Franklin is staying in the ring.

In the past year, the company has boosted its staff of bank sales specialists by six, to 37. Franklin's chief of bank sales, Toby Mumford, has been criss-crossing the country to meet with executives at the 50 largest banks. And Franklin is pitching its expertise in customer service and sales generation to bank clients - even if they want to tap this know- how to build up their proprietary funds.

Franklin is going to these lengths to protect its status as one of the two leaders in mutual fund sales through banks, just behind Putnam Investments.

In 1995, Franklin's sales through banks totaled $1.8 billion. While that's healthy compared with many mutual fund companies, it's a notch below its $1.9 billion of sales in 1994, and well short of the $4 billion booked in 1993. Banks, which had accounted for 20% of sales at Franklin a few years ago, have dropped to 10%, behind financial planners and stockbrokers.

Nevertheless, Mr. Johnson said, banks remain "a viable and important source of growth."

He said he believes banks are extremely committed to selling mutual funds, and cites their annual reports as evidence. "The chairmen are no longer talking about corporate loans to General Motors, but about being financial services companies."

Executives acknowledge that the weak link in Franklin's mutual fund sales strategy is its heavy concentration in bond funds. In the early 1990s, the funds were wildly popular with bank customers, and strong sales helped propel Franklin to the top of the bank fund sales rankings. But now domestic stock funds are fueling the market, and they account for only 12% of the $101 billion in assets managed by Franklin.

"By not being strong in domestic equities, Franklin has missed a significant chance to advance in the fund marketplace," said Dennis Dolego, a partner at Chicago-based Financial Research Corp. "The impact at banks has been fairly significant, since customers have been looking towards equities."

In an interview in Mr. Johnson's corner office overlooking San Francisco Bay, he and Mr. Mumford said Franklin is beginning to bounce back from the 1994 bond market crash.

"This year has been a completely different story from last year," Mr. Mumford, a senior vice president, said. "Our sales in January were up 85% over December." And the company has captured shelf space at 19 of the 20 banks it marketed to over the past year.

Still, the two executives acknowledged that banks are tough places to sell mutual funds.

Banks responded to the 1994 drop in the bond market by firing a lot of their top sales executives, Mr. Mumford said. So Franklin was forced to reacquaint itself with the banks it had easily entered when bond funds were more in favor.

"There's not a program out there today where it's the same people my predecessor first called on," said Mr. Mumford, who took his position at the end of 1994.

Moreover, Franklin's momentous 1992 acquisition of Templeton, Galbraith & Hansberger Ltd., one of the best-known international fund managers, hasn't yielded as much volume through banks as through other sales channels.

In 1995, 14% of banks' sales were in the Templeton Funds; the percentage at brokerage firms and financial planners was almost three times higher.

Also, bankers say Franklin is perceived as a company that has lived off its reputation, and has failed to give enough training and marketing support to banks.

"I keep telling the Franklin executives: 'You guys deserve a bigger piece of our business, because you have great funds. But you're not capturing our brokers' attention,'" complained one brokerage chief, who requested anonymity.

Finally, the myriad of bank branch closings because of acquisitions hurts Franklin by limiting the number of locations that offer mutual funds. And the growing desire among customers for electronic banking, such as through the Internet, portends another problem.

"Enough use of the Internet will make branches obsolete," Mr. Johnson said. "If that happens, that will seriously undermine banks as a distribution channel, because we rely on getting funds through their branches."

Still, the fact that Franklin remains one of the leading sellers through banks, in spite of flat sales, only accentuates the company's stature, according to observers.

Founded in 1947 by Mr. Johnson's grandfather, Rupert Johnson Sr., Franklin has a reputation as a conservative money manager. An $18-million- a-year advertising campaign associates its plain-vanilla bond funds with the visage of Benjamin Franklin, famous for his common sense and frugality.

"Franklin is just a brilliant marketing organization," said Don Phillips, president of Morningstar Inc. And its conservative money managers "win over time primarily by not losing."

Gregory Johnson is one of a slew of family members with a hand in Franklin's management. His father, Charles B. Johnson, is chief executive and president. His uncle, Rupert Johnson Jr., is chief investment officer. An older brother, Charles E. Johnson, is in charge of running Templeton. And his sister, Jennifer J. Bolt, is president of the financing subsidiary.

But while they manage the daily mechanics of the business, Gregory Johnson is the one in the field, solidifying and building relationships with investment advisers, touting the company name.

He says his father, who became president in 1968, taught him that it's unwise to focus marketing efforts on today's hot funds. "The spouting whale gets harpooned," he said. "It's a Johnson expression that I've heard from my father and uncle a lot."

Gregory Johnson worked as an accountant at Coopers & Lybrand before joining the family shop in 1986. He learned the ropes as a sales representative, and as a co-manager of the Franklin Income Fund.

"He combines the investment know-how of a portfolio manager with marketing savvy, and that's a rarity in the business," said Morningstar's Mr. Phillips. "He had the right family connections, but he's up for the job."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.