The mutual fund industry is quickly abandoning its commission-based sales structure-and bankers would be wise to take note, said a top executive at Charles Schwab & Co.

"Bankers need to embrace the fee-based advice model. If you don't, you're going to be uncompetitive in the new world," said John P. McGonigle, a Schwab senior vice president and founder of its widely emulated OneSource and Mutual Fund Marketplace.

At the same time, this means competition for mutual fund customers will become even more intense. "Fee-based means a more level playing field," Mr. McGonigle said.

He made his remarks here Tuesday at the Bank Securities Association's annual meeting.

Half of all third-party fund sales are through fee-based brokers, said Mr. McGonigle. Regional brokerages were first to adopt the fee-based system, and "lately wire houses have embraced it," he said. "There is a conflict of interest in commission advice. A fee-based broker sits on the same side of the desk" as the customer.

The marketplace has shifted away from up-front sales loads to the point where no-load funds are now the norm, he said.

San Francisco-based Schwab offers 1,300 funds, all of which are available through OneSource. Mr. McGonigle is widely credited with opening up the third-party fund marketplace.

In 1990, when he joined Schwab, fund sales through third parties totaled $3 billion; for 1996, the total was $75 billion.

Yet Mr. McGonigle is mindful of the need to stay in front of trends in the marketplace. A season-ticket holder of the San Jose Sharks hockey team, he quoted the great player Wayne Gretzky: "Don't go to the puck; go to where the puck's going to be."

Schwab is widely known as a low-cost broker for investors who know what they want and don't need a lot of sales assistance. For that reason, full- service brokers often criticize Schwab, saying it may be cheaper but doesn't always give clients thorough guidance.

But Mr. McGonigle, using the hockey analogy, said, "The puck is not headed toward self-directed investors. Most (Schwab funds) are sold with advice from fee-based financial advisers, wire houses," or other sales people.

He was critical of NationsBank Corp.'s fund supermarket, which the Charlotte, N.C., banking company rolled out in October.

"I can't understand what Nations is doing," he said. "I predict the supermarket will be closed. OneSource cost a lot of money before we could make it work."

Wednesday, spokeswoman Ann Anderson said NationsBank had introduced the supermarket to respond to customer demand. "We are firmly committed to continue to meet the needs of our customers; we have no intention of stopping," she said.

"Why (Schwab) singled us out, I don't know, although they do compete with us here," she said, referring to a sales arrangement Schwab has with NationsBank rival First Union Corp.

Banks that want to sell funds through OneSource, Mr. McGonigle said, must have funds with a track record. "You better be putting up great numbers already," he said.

Schwab has no limit on the number of bank funds it will sell through its OneSource program.

But its standards are more stringent for a more extensive arrangement. At present, only KeyCorp, Cleveland, and First Union offer Schwab's OneSource at their bank branches.

"We're looking for a few good banks, with good numbers," he said, adding that Schwab would be interested "if you have three commas in the asset column."

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