Fiserv Inc., a leading supplier of technology services for banks, is considering providing mutual funds to its huge customer base.
Fiserv and its Denver-based subsidiary, First Trust Corp., are analyzing whether it would be feasible to enter the so-called third-party marketing and account servicing businesses.
Third-party marketers normally set up agreements to sell mutual funds between fund families and banks. Some train bank employees to sell securities, while others act as broker-dealers and place their own brokers in banks.
Fiserv's primary business is supplying data processing services to about 5,000 banks.
"Our situation is, we'll do it if our clients want us to," said Fiserv chairman George Dalton. "We're in a very exploratory stage. We've had people [customers] inquire about it, but nobody has said go do it yet."
Observers said Fiserv could be a significant factor in the growing third-party distribution market.
"Strong companies coming into the industry indicate the importance of this market," said Michael Maher, a spokesman for Portland, Ore-based Marketing One, a leading third-party marketer of investment products to banks.
When asked if Fiserv could succeed, Jeff Cathie, a marketing vice president with Liberty Financial Co.'s bank products section, said, "I don't see a reason why not."
Decision by Yearend
Gordon Rockafellow, president of Fiserv subsidiary First Trust, is leading the investment products project for Fiserv. Mr. Rockafellow said the project is his first priority and he hopes to come up with an answer before year's end.
First Trust is a Denver-based individual retirement account and benefit contribution servicer with $10.2 billion under administration, including $570 million in FDIC-insured deposits.
First Trust operates under a Colorado state banking charter, offering money market funds and servicing for self-directed IRAs and other accounts brought to it by brokers financial planners.
Community Bank Clientele
Fiserv provides a range of services mainly to community banks, from automated teller machine servicing to item processing (check handling), to asset and liability software management systems.
The company and its five subsidiaries had $332 million in sales last year, Fiserv has offices in 44 cities.
Mr. Rockafellow said his objective is to make the idea work profitably at the community bank level.
The initial thinking, according to Fiserv executives, is to sell an established fund family, using First Trust's computer systems for servicing and possibly training bank employees to sell securities or have the banks hire experienced brokers. A relationship with an established broker-dealer is another option.
Among Mr. Rockafellow's concerns:
* "How do we get enough money to banks to make it worthwhile to them? How do we protect the banks to make sure the client list is secure and doesn't fall into the hands of the mutual fund companies?"
* "How do you make sure there's a balance between an aggressive sales force needed to get the job done and the culture of the community bank, to make sure the two don't get out of balance?
* "I'm not so sure you need a broker-dealer [on bank premises]. If someone walks into your bank and says, I want to buy 100 shares of IBM, you don't want him to walk out the door to Merrill Lynch. It would require a broker-dealer affiliation somewhere, even though you may wish there not be. The relationship [with the customer] has to be salvaged," Mr. Rockafellow said.
Mr. Rockafellow's immediate superior, Fiserv executive vice president Ken Jensen, said he doesn't want to look "foolish" by unveiling any plans. He added that hooking up with an established fund family would be the most logical way to start.
"We know that banks are selling [investment products), and is there a feasible way for us to do it?" Mr. Jensen said.
For his part, Mr. Dalton says he is viewing the boom in bank investment sales with caution. He has been in banking 40 years and has seen investment products come and go with interest rate fluctuations.
"Fifteen or 20 years ago they were extremely popular for a while and then they fell out of popularity," Mr. Dalton reflected. Higher-yielding things like CDs amid double-digit inflation came back."