For banks building mutual fund businesses, the best place to start is right at home.

That's the advice of Richard A. Davies, president of First Chicago Investment Services Inc. and Eugene G. "Trip" Purcell 3d, vice president and manager of Branch Banking and Trust Co. Both First Chicago and BB&T, which is based in Wilson, N.C., have taken the plunge into the funds.

"Cross-selling to current customers is our No. 1 priority," Mr. Davies told bankers at the American Banker 1993 bank mutual fund conference.

|Total Commitment'

The strategy at First Chicago Corp., which recorded its first significant mutual fund sales in late 1991 and now has $1.5 billion of assets in its proprietary First Prairie Funds, is "total commitment to cross-selling," he said.

The bank currently has investment relationships with about 4% of its customer base, Mr. Davies said. That leaves the bank's mutual fund marketing force with a long list of prospects who already have relationships with the bank.

These people are more likely to buy funds from their own bank. A study by Fidelity Investments found that 32% of investors who already own funds are "very likely" to buy funds from their own banks. That compares with only 8% who are likely to develop new bank relationships.

"You should really start with your own customer base,' agreed Joseph F. Kissel, executive vice president of Concord Financial Group Inc., a major sponsor, distributor, and administrator of proprietary bank mutual funds.

Bankers have cross-selling opportunities right under their noses, Mr. Purcell said. At BB&T, for example, opportunities exist with trust customers, traditional commercial customers, merged thrift customers, * and insurance customers.

Building the Business

With mutual fund assets of $340 million, $42 million of which is in retail assets, the bank has made great strides since it started its mutual fund group in October 1992. The bank now has 15 salespeople, up from two last year.

B&T is the fourth-largest bank in North Carolina, with $8 billion of assets and 230 branches. Many of the households it serves have incomes over $100,000. Wit $2 billion in trust assets, BB&T also has ample ability to convert trust assets into new funds.

The Biggest Obstacle

BB&T started offering funds because its customers wanted them. It also wanted to expand its market and keep up with the competition - banks, brokers, and mutual fund companies. Proprietary fund sales account for about 40% of what BB&T's brokers are selling.

The bank has encountered obstacles to cross-selling, however, and "the biggest obstacle is us," Mr. Purcell said. Employees are not well educated about mutual funds, and that translates into missed opportunities and lost business.

Like most banks, BB&T lacks a "sales culture," he explained. Employees need training - and incentives. BB&T has hired Omega Performance, San Francisco, to train employees in making referrals. "Some people might think it's rude to ask customers if we can help them," Mr. Purcell joked.

Another stumbling block, Mr. Purcell, said is that employees and customers lack awareness and knowledge of investment products. And the bank also must make buying funds more convenient, he said. With one sales representative for every 15 branches, BB&T needs more investment counselors.

First Chicago, which is now concentrating on selling to current bank customers, plans eventually to go after investors who use brokers. But people who want to do all their own research and are averse to paying fees do not fit into its marketing strategy, Mr. Davies said.

What Bank Customers Want

That view reflects the Investment Company Institute's findings on what investors who buy mutual funds through banks want. The typical customer who buys funds from a bank is looking for personal contact and for guidance from a trusted adviser, the study found. Such customers are not self-reliant when it comes to investing and do not object to paying fees.

"It is very clear that the no-load buyer is very different than the load buyer," Mr. Davies said in an interview. "Load buyers want advice. While they don't want to pay a load, they are not so price sensitive."

Mr. Davies has no qualms about charging sales fees for investment products. If you don't charge a load, "you're leaving money on the table," he said.

Both Mr. Davies and Mr. Purcell forecast tougher days ahead for banks in the fund business.

"The game is changing," Mr. Davies said. Banks will soon "have to work harder for the same return."

Mr. Purcell agreed. "There will be times when demand won't be like it is today."

George M. Salem, a bank analyst with Prudential Securities, said that when the market sags, many banks will pull out of the mutual funds business.

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