First Security Corp. is creating a family of mutual funds to lay the groundwork for a broad drive into the 401 (k) plan market.
The $3 billion-asset banking company, based in Salt Lake City, will launch six of its own funds and will place its name on several outside funds. Its aim is to boost its sales of the retirement savings plans in Utah, Idaho, and New Mexico.
By setting its sights on 401(k) plans, First Security is taking a somewhat unusual path into the proprietary mutual fund business, according to industry experts.
"It's not the most typical way of rolling out proprietary funds," said-Glen Casey, a consultant at Cerulli Associates, Boston.
Many banks first create funds for their retail customers, and only later make these products available for 401(k) plans and proprietary variable annuities.
'They may be realizing that banks are having trouble raising assets in the retail channel and are looking to the 401 (k) market as an alternative," Mr. Casey said.
Indeed, First Security believes its best opportunity lies with the thousands of small- and medium-sized businesses in its market area. That's why the bank will roll out the 401(k) product by year-end, followed by a retail program sometime next year, said Patricia A. Richards, executive vice president at First Security's lead bank.
Executives at First Security believe that offering mutual funds as part of the 401 (k) program will attract more business, partly because customers like being able to track the value of their investments in daily newspapers. Until now, the banking company placed defined contribution plan customers' money in low-profile private trust funds.
"I have no doubt we will lose 100% of our [defined contribution] business if we don't have a daily valuation vehicle," Ms. Richards said. First Security will convert about $500 million of trust and other assets to create its funds, Ms. Richards said in an interview.
The proprietary offerings will include three bond funds, two stock funds and a fund that mixes its investments between stocks and bonds. First Security will supplement the array by contracting with outside advisers to manage three money market funds, an aggressive equity fund and an international equity fund.
"We need to meet the competition with a very strong package of funds," she said.
First Security executives expect SEI Corp., which will serve as the proprietary funds' distributor, to play a major role in supporting the 401(k) drive. The Wayne, Pa., company will help market the 401 (k) product, prepare reports for plan participants, and supply systems support.
A number of the banking company's units also have had a hand in developing the program, and the multi-department approach has proceeded virtually without a hitch, Ms. Richards said. In fact, the diciest issue appears to be what name the funds will carry.
Coming to agreement on this, "might well be the single-most difficult assignment for us," Ms. Richards said.
