While the share of bank mutual fund sales going into bank proprietary funds has remained stagnant over the past four years, most bank investment services programs report that they intend to increase their emphasis on proprietary funds.
That is one of the findings from the 1997 bank investment program benchmarking survey conducted by Kehrer Associates in conjunction with the Consumer Bankers Association and Alliance Capital.
Since 1994, bank proprietary funds have been 28% to 30% of the typical large bank's mutual fund business. While bank proprietary mutual fund sales have grown, this growth seems to be a case of a rising tide raising all ships. Bank proprietary funds have merely been keeping pace with overall bank mutual fund sales.
According to the benchmarking survey, 57% of banks with proprietary funds plan to increase their emphasis on proprietary sales. Of these, 44% plan to increase proprietary sales significantly. By contrast, only 17% of the banks with proprietary funds plan to de-emphasize them.
While banks are looking to increase sales of their proprietary funds, they do recognize that regulations and bank client preferences require that outside mutual funds maintain an appropriate share of their business.
Curiously, the bank investment programs that want to increase their proprietary share of mutual fund sales somewhat are concentrated in the banks that lead in bank-advised funds as a proportion of total fund sales.
Banks that want to increase the proprietary share average a 27% share now, compared with only 12% for the banks that are content with that share and 18% for the banks that plan to de-emphasize proprietary sales.
Among the one-third of banks that say they want to increase their emphasis on proprietary funds somewhat, such sales already equal 35% of fund total.
Digging deeper into our data, we find that the banks that want to emphasize proprietary funds more are also more successful at selling mutual funds per se. By dividing a bank's mutual fund sales by its retail deposits we can measure sales penetration-how successful a bank's mutual fund sales program is relative to the size of its retail customer base.
Again, fund sales penetration is higher where there are plans to increase the emphasis on proprietary funds. Banks with such plans average fund sales equaling 2.1% of deposits, against 1.5% for banks content with the share of proprietary funds in their mix and 1.3% for those planning to de-emphasize such funds.
The data suggest that the banks with the most successful mutual fund sales penetration are also the best at selling proprietary funds.
Banks in the top quartile of mutual fund sales penetration-that is, with fund sales equal to at least 1.9% of retail deposits-are also the best at selling proprietary funds. Here bank-advised funds came to 26% of overall fund sales, more than twice the share at banks in the bottom quartile.