Offering mutual funds and being a mutual fund company are two different things. For a bank to succeed in the funds arena, it must truly be a mutual fund company.

Banks were quick out of the starting gate in building mutual fund assets by converting trust assets, but now most have lagged behind in the race to attract new retail assets.

Those who are winning the race for new assets have a common trait - they've done what it takes to resemble the best nonbank fund companies.

Taking the necessary steps to compete with the big fund companies is a daunting proposition for most banks. It requires a dedicated, disciplined approach - researching the market and understanding the funds arena, constantly reinvesting in the fund complex, repackaging existing products, and, most importantly, building customer trust and confidence in the products and services being offered.

Selling mutual funds has become a business of brute force. The biggest fund companies have the resources to handle huge volumes of fund business and create vast arrays of fund offerings, while most banks struggle to manage a small fund family.

However, Atlanta-based SunTrust Banks has proved that a bank can create a profitable fund family provided it is willing to take advantage of external resources to help it fully understand the market.

SunTrust's STI Classic Funds' retail assets under management have grown from nothing in 1992 to $900 million today. Their trust and retail funds were ranked 10th overall for total return performance in 1995 in a survey published in Barron's.

SunTrust's story illustrates the key attributes for success: understanding of the market's demands, a diverse family of funds, reinvestment in the complex for growth, effective marketing and distribution channels, and a focus on customer service.

Successful banks' fund offerings are tailored to the market's needs. Initially, however, most banks lack the resources and expertise to position themselves effectively in the market.

In building its STI Classic Funds family, SunTrust had to research the market to determine demand, viability of different funds, required assets for profitability, and pricing of funds in the market. SunTrust realized its limitations and invested in the necessary expertise to best understand the market, which allowed it to focus on its customers and its core business.

When SunTrust started the STI Classic Funds in 1992, it offered six funds. It sold one trust class of shares and one retail class of shares.

SunTrust soon realized its nonbank competitors' strength in fund diversity, and expanded its fund family, adding 13 funds.

It was SunTrust's fund diversity that enabled it to fit the criteria of a well-rounded mutual fund family in the Barron's survey. In SunTrust's case, a "well-rounded" family of funds includes equity funds, taxable bond funds, tax-exempt bond funds, an international stock fund, money market funds, and a stock/bond mix fund.

Offering a diverse family of funds is key to attracting new assets. By not offering a comprehensive product, banks limit their customer base. Most personal investors prefer one-stop shopping, generally investing in one family of funds.

Much of the bank's success stems from the early realization that simply converting trust assets isn't enough to compete - banks must employ a dynamic growth strategy, centering around ongoing product development.

SunTrust continues to respond to customer demands, recently repackaging several existing funds to form a new asset allocation product. Additionally, the bank developed a new retail class of shares to compete against no-load funds.

The STI Classic Funds are so diverse and successful that SunTrust has been able to pare down its external fund offerings to a 50%-50% ratio of internal fund to third-party fund - the industry average is about 25%-75% - and retain significantly more assets under management.

Once the fund family was established, SunTrust increased its assets by reinvesting in the fund complex. SunTrust expanded its distribution network to market the funds.

SunTrust was able to increase its mutual fund offerings because it was attuned to market demands and had the appropriate support network already in place.

Mutual funds are a critical component in the customer's investment mix, and banks can compete in the mutual fund arena and be profitable.

But they can't be complacent. They must invest the resources to prove to their customers that they are committed to being a mutual fund company.

Mr. Wagner is an executive vice president at SEI Corp., which provides administration and distribution services to bank proprietary fund clients.

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