KANSAS CITY, Mo. -- When the Independent Bankers Association of America awarded Boston-based Massachusetts' Financial Services Co. the contract to market its mutual funds to 5,800 member community banks, it signaled more than just the independent bankers getting into the mutual fund act.
It also heralded the entry of a mutual fund servicing giant, DST Systems Inc., into the bank distribution channel.
DST, based in Kansas City, Mo., developed the software system that will be used by an estimated 800 bank employees and brokers when they sell Massachusetts Financial's namesake mutual funds.
4 Major Business Lines
The fund-servicing company reaped $270 million in sales last year in its four major business lines -- transfer agency, portfolio management and accounting systems, corporate stock and bond transfer systems, and workflow management systems.
DST's transfer agency business claims such fund families as Janus , Lord Abbett American Capital, and Kemper. DST serves 150 management companies and processes 26 million mutual fund accounts -- 42% of the nation's total -- making it by far the industry leader.
DST's parent, Kansas City Southern Industries Inc., also holds majority ownership in Janus Capital Management and 10% of Berger Associates.
Has Dealt with Banks
DST has done business with banks before. For example, it provides transfer agency services for Citicorp's Landmark funds and Banc One's One Funds through its processing subsidiary, Boston Financial Data Services.
The processor is jointly owned by DST and State Street Boston Corp.
In the mutual fund world, a transfer agent handles fund accounting, customer statements and telephone information requests, and mailing of sales literature.
DST also sold workflow management systems to First Chicago Corp. Marine Midland and Chase Manhattan Corp. use DST's corporate stock and bond transfer system.
The IBAA contract with Massachusetts Financial is DST's first major bank mutual fund involvement. And executive vice president Thomas A. McCullough hopes it's just a sign of things to come.
|A Lot of Opportunity'
"We think the bank marketplace has a lot of opportunity for growth," Mr. McCullough said.
"Our intent is to provide a tool to make it easier for our clients to sell their products through banks. It's beneficial to us because we get more processing and therefore get paid more."
Massachusetts Financial's contract with the IBAA is an example of how DST can use its expertise to tailor a product to a market.
Massachusetts Financial wanted to offer the independent bankers -- a reluctant, even cantankerous, lot when it comes to selling mutual funds -- something the other 20 bidders on the contract could not.
So when DST approached them, Massachusetts Financial officials eagerly accepted the workstation idea and decided to throw in a few wrinkles of their own.
|It Had an Impact'
When the broker or bank employee pulls up a customer's profile on a computer screen, key regulatory compliance questions come with it, so that the broker is much less likely to get the bank in trouble with the National Association of Securities Dealers or bank regulators.
"There's no question it had an impact on [winning the contract]," said Jeremiah Potts, senior vice president of marketing at Massachusetts Financial.
Mr. Potts says the software system is unique in that a broker can check account balances and place orders immediately on the personal computer through a modem hookup to a service center in Boston.
"That's important for community banks because they're scattered all over the country," Mr. Potts said.
Has Its Drawbacks
If a broker is not in the bank, a bank employee goes over the asset allocation model and risk and needs analysis, then refers the customer to a toll-free number in Memphis, where Massachusetts Financial brokers will fill orders.
The system has drawbacks for the banks, however. The main one is that customers can buy only Massachusetts Financial funds.
The company's five-year contract with the IBAA stipulates that no other funds be sold.
And, adding to the usual expense and hassles of operating personal computers -- especially for a small bank without a data processing staff -- is the fact the DST software program works best on a personal computer with 486 capability. Most personal computers in use are in the less powerful 386 range.
Differentiating the Product
Both DST officials and Mr. Potts acknowledge that DST will sell its system to other mutual fund families, including banks.
But Mr. Potts said he is not concerned because Massachusetts Financial has added its own touches, mainly in the compliance area, that differentiate the product.
Mr. Potts said that 100 banks have approached him about the IBAA program in the three months since the contract was announced and that he hopes to have 200 to 300 of the software programs sold the first year.
Following the Clients
Regardless of the success of the IBAA program, DST now has made its mark on the bank mutual fund distribution channel. The company intends to continue following its mutual fund customers into the bank arena.
"Our clients said, |We are getting into the banking industry,'" DST client administrator Martha Sabin said.
"Therefore we're always looking for ways to better market ourselves to our clients."