New laws allowing for common trust funds to be converted into mutual funds have given bankers a new issue to grapple with: What should they charge trust customers whose funds have been converted?

If trust clients must begin paying mutual fund management fees, should they be charged lower trust account fees to balance things out? Or should they continue paying the same trust fees, even as they shell out money for their new mutual fund assets?

These questions were on the minds of 175 bankers and lawyers who attended a trust compensation conference sponsored by Federated Investors here last week. Some speakers, including Richard B. Covey, a lawyer at Carter Ledyard & Milburn, New York, argued that banks should reduce trust fees when they convert assets to their proprietary mutual funds.

"I think that would solve your problem," Mr. Covey said. Higher fees are "difficult to justify because it's still the same organization."

One audience member, Gus V. Fish Jr., a principal at State Street Global Advisors, agreed. "You have to make some kind of adjustment to the trust account fee to offset the mutual funds fee so there is no difference," he said.

But other speakers said trust departments do not have to cut fees. Levying both fees - imposing a slightly higher cost on the customer - is fair and legal, they said.

"The bank is not double-dipping," said Melanie L. Fein, a partner at Arnold & Porter, a Washington law firm. "The services that are performed for mutual funds are distinct from those performed for trust services."

Which fees can be applied depends on whether assets are being converted to third-party or proprietary mutual funds and whether the clients are individual trust beneficiaries or 401(k) participants.

When converting to mutual funds managed outside the bank, many trust bankers said retaining trust account fees is perfectly justified. They argued that trust officers should be compensated for selecting and monitoring the mutual funds, just as they would be for picking securities.

"The trust beneficiary will get enhanced investment expertise," said Leo J. Meier, executive vice president of American Trust and Savings Bank, Dubuque, Iowa. "It's a value-added service."

Mr. Meier's trust department manages $400 million of trust assets, of which $120 million are in common trust funds he wants to convert to mutual funds.

"I will need substantial legal assistance in making the conversion," Mr. Meier said. "It's a multifaceted endeavor, and it can't be done overnight."

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