When Philip Tasho agreed three years ago to return to Riggs National Corp. to oversee its money management operation, there was one big condition.
"I said that in order for me to come back, we need to have a structure to make us a true investment advisory firm that just happens to be owned by a bank," said Mr. Tasho, who had been head of equities for the Washington- based institution before leaving in 1994 to work for Shawmut National Corp., Boston.
Mr. Tasho got his wish. The analysts and portfolio managers at Riggs Investment Management Co., or Rimco, now get paid under a system similar to that of their counterparts at top money management firms.
That includes profit sharing and incentives for meeting performance targets.
The investment business has its own board of directors, its own accounting system, even its own computer system.
Now the $4 billion-asset bank is going one step further, forming a broker-dealer that would sell its Riggs Funds not only in the bank's 55 branches but through small brokerage houses around the nation.
Riggs Investment Corp. should be up and running in November after completing registration requirements. Until now, Riggs has distributed funds through a third-party marketer.
Now, it is actively scouting for mutual fund boutiques that it can acquire to add assets and complement its product lineup.
The broker-dealer is just one part of a strategy designed to give a shot in the arm to the bank's five funds, which are strong performers but could and should attract far more assets than the $641 million now under management, Mr. Tasho said.
Two of its best funds are its small-cap fund, which as of June 30 returned 27.22% over three years to rank in the top 6% of its peer group, and its growth-and-income fund, which is in the top 36% for its peer group over the same period, with a total return of 26.28%, according to Lipper Analytical Services.
Riggs' efforts to establish an independent money-management business should help it to attract and retain money managers, said Mark Elzweig, president of Mark Elzweig Co., a recruiting firm in New York.
"This is very much an expanding industry, with fierce competition for talent," he said. "If a bank is serious about being able to attract and retain high-caliber people, they really have to have a separate subsidiary format where the compensation level will at least come close to those on the private money-manager side."
James R. Eads, president of the new broker dealer, said Riggs can build its fund assets to $3 billion by the end of 2000 by increasing branch distribution; selling through small brokerage houses, financial planners, and registered investment advisers; changing the pricing structure; and other steps.
Aside from its proprietary fund family, the bank also offers nonproprietary funds; Putnam Investments is its biggest seller. Sales of Riggs' proprietary funds were less than $16 million last year, a small figure for a fund family with more than $600 million of assets under management.
Many of the key changes Riggs is counting on to bolster fund sales took effect July 1.
The fund family's name was changed from Rimco Monument Funds to Riggs Funds to make the products more distinctive. The pricing for its core shares was changed from a 5.75% up-front load to a back-end structure where clients pay a 2% fee for redemptions within five years and no fees after five years.
Because of the high up-front charges, "It's no surprise it wasn't selling, despite the excellent performance," Mr. Eads said.
The company also created a traditional B share with a graduated back-end load.
And it now has 12b-1 fees, which help finance broker commissions and pay for marketing expenses.
Mr. Eads, the former head of Signet Banking Corp.'s retail brokerage business, joined Riggs in January to run its new brokerage operation.
Already Mr. Eads has hired two wholesalers, one in Madison, Wis., to cover the Midwest, and another in New York to cover the Northeast and Mid- Atlantic.
Riggs plans to market harder to its unique client list. By virtue of its location, the bank caters to embassies, trade associations, nonprofits, and other such groups.
"Frankly, we haven't done a real good job of selling investments to them," Mr. Eads said.
Riggs plans to do affinity marketing of its mutual funds with its clients, and to add direct mail and Internet marketing. It recently hired Mark Nachimson, who previously handled direct marketing of investment products at Signet.
As for buying other fund companies, the company has only a general timetable - within a year or two, Mr. Eads said. "We need to expand the breadth and depth of our fund," he said.
Riggs now has a small-cap and a large-cap fund, two money market funds, and a bond fund. It wants to expand its offerings of asset classes, adding, for example, high-yield bond funds, focused funds (which hold a small number of stocks), municipal bond funds, and international equity funds.
Riggs' 19 investment professionals - who run $2.8 billion, including institutional assets and trust funds - use a "value momentum" approach, picking companies that show strong earnings growth now but are likely to be stable performers over the long run.
Observers describe Riggs' plans for its fund business as ambitious, especially for a smaller bank.
Bigger banks like First Union Corp. have acquired fund complexes, formed broker dealers and expanded distribution of their funds outside the branch network.
For a smaller bank to try to do that all at once is "really a tough row to hoe," said Kenneth Kehrer, a consultant in Princeton, N.J. "They've got a lot on their plate."
Mr. Tasho said that the bank has one big factor in its favor.
"We can capitalize on the funds' performance because it is better than 90% of the banks that are out there," he said.
