More than 100 banks manage their own families of mutual funds, and they all need an outside partner to act as "distributor." But how do they choose? And what exactly does a distributor do, anyway?

Distributor perform a variety of legal and marketing tasks that are off limits to banks under the Glass-Steagall Act.

The distribution function is often overlooked in rush to put mutual fund products in the bank lobby.

Selection Seen as Crucial

But some bankers say that the choice of a distributor is a crucial step toward creating a strong proprietary fund program.

"You're getting into a different business, and you need to understand that from the outset," said Ron Holt, executive vice president for trust at Liberty National Bancorp. in Louisville, a $4.7 billion bank that introduced its proprietary Trademark Funds in March.

Expertise Varies Widely

Distributors themselves come in a variety of stripes. Some big mutual fund companies like Dreyfus and Goldman Sachs will do the job for banks. At the other end of the spectrum are specialty firms such as Concord Holding Corp. and Alps Securities Corp. All distributors are registered broker-dealers.

Distributors have legal departments than handle registrations with state and federal regulatory bodies. Distributors also prepare the prospectuses that are mailed to potential investors.

Some of the companies go a step further, helping banks to develop and carry out marketing strategies.

Earlier this year, Boulevard Bancorp in Chicago had to pick a distributor when it launched its Boulevard Fund family. It was an unusually small startup, with only $100 million.

Boulevard looked at several different distributors before settling on Federated Investors. A big attraction was Federated's expertise in legal and compliance matters.

"If there was one thing we needed to be strong in, it was legal," David Raub, Boulevard's senior vice president and trust manager. "We wanted to feel we were dealing with someone who could tell us authoritatively about what the regulatory response was likely to be, and we've been quite pleased" Mr. Raub said.

Federated also provided advice on how to organize, train, and motivate the bank's inhouse sales staff.

Because Boulevard was not set up to administer and service its own fund, it looked to Federated for that also.

Mr. Raub recommends that banks "make sure your sales culture is in place before you start. If we hadn't started five years ago, we would have gone to a lot of trouble for nothing."

Task Force Often Used

The process of choosing a distributor starts with a task force of three or four people who will be responsible for the mutual fund effort.

The task force studies the market and meets with prospective distributors to determine their strengths and weaknesses.

W. Robert Alexander, chairman of Denver-based Alps Securities, advises banks to check out the back shop operations. Be convinced, he advises, that the necessary staffs is in place to handle legal and compliance issues and to produce prospectuses.

Bankers should also quiz prospective distributors on how they can integrate a program into the bank's operations, said Dennis McGonigle, a senior vice president at SEI Corp.

The Wayne, Pa.-based company provides mutual fund distribution services to many banks, including Banc One Corp., Columbus, Ohio.

|3d Party' Guide Offered to Banks

American Brokerage Consultants has published its 12th edition of the "Bankers Guide to Third Party Securities & Annuity Programs."

The guide, produce semi-annually since 1988, describes the services, products, and programs of scores of marketing companies that supply investment products to banks.

The guide is "the only publication that brings together all the data banks need about these companies," said Richard A. Ayotte, managing partner of American Brokerage Consultants, St. Petersburg, Fla.

Mr. Ayotte's firm is also updating its "Bankers Guide to Mutual Fund Companies & Packaged Products."

This publication covers more than 20 major companies that distribute more than 500 mutual funds through banks on a retail level.

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