acquired more than an established discount broker.

As part of the deal, Fleet inherited a capacity unique to a bank: that of distributing mutual funds to other banks and brokers through Quick & Reilly's securities clearing arm, U.S. Clearing.

Fleet is now in a position to offer a fund supermarket resembling Charles Schwab & Co.'s OneSource platform, both to its own brokerage customers and to other banks and brokers. For the most part, other banks that offer access to multiple funds have had to lease the capability from a third party.

U.S. Clearing's clients, mainly smaller banks and brokers, refer their customers to the clearing firm's discount brokerage business. Individuals can place trades by telephone -- either by talking to a broker or through a touch-tone service -- or, increasingly, through the Internet.

U.S. Clearing, which maintains a revenue-sharing arrangement with its clients, then executes and clears the trades. The unit is based in New York and is a division of Fleet Securities.

Since January, U.S. Clearing has provided direct access to Quick & Reilly's mutual fund supermarket, with some 3,000 funds from about 225 fund families, including Fleet's own Galaxy Funds.

Customers using the discount broker can purchase the funds without opening a separate account with Quick & Reilly.

U.S. Clearing provides discount brokerage services to about 225 of its 390 correspondent clearing customers, and more than 90% of them offer mutual funds, said a spokesman, Charles G. Salmans.

Customers fall into roughly three categories: brokers, banks, and "strategic alliances." For instance, in July, U.S. Clearing signed a discount brokerage agreement with the Gay Financial Network, a New York-based Internet company that connects gay investors with financial services and information.

During the summer, U.S. Clearing also signed similar agreements with two companies that set up Internet banking sites, and with an Internet-based financial planning service.

The firm adds, on average, five clients a month, and that pace shows signs of picking up as Internet banking services increase in importance, said Peggy A. La Belle, a vice president at U.S. Clearing and director of its brokerage service.

The majority of U.S. Clearing's discount brokerage customers -- roughly 90% -- are banks, said Ms. La Belle.

One of the best sources for bank clients is an arrangement between U.S. Clearing and Memphis-based ICBA Financial Services Corp., the securities arm of the Independent Community Bankers of America. About 140 of U.S. Clearing's bank clients discovered the New York firm through the alliance.

So far, the setup seems to be advantageous on both ends.

The program allows community banks to offer their customers a discount brokerage service for little investment. U.S. Clearing charges a nominal fee to set up the service.

Bank customers benefit from consolidated account statements and from having funds transferred directly back and forth between their brokerage and bank accounts.

And unlike mutual fund companies, U.S. Clearing does not compete with banks, said Ms. La Belle. U.S. Clearing buys funds on an omnibus basis and does the sub-accounting, leaving the direct marketing of the funds to its clients.

"All of our business is unsolicited," she said. "A mutual fund company is looking for the bank's customer. We're looking to be a partner of the bank."

Customer statements, which read "courtesy of U.S. Clearing," prominently feature the name of the correspondent bank. And the name Quick & Reilly appears on neither the statements nor the Web sites, bolstering the impression that this is a service offered by the correspondent bank.

By reaching out to the community banking circle, the U.S. Clearing program differs from other arrangements between banks and fund supermarkets. For instance, First Union Corp., Charlotte, N.C., and KeyCorp, Cleveland, have agreements to distribute products of San Francisco-based Schwab's OneSource fund supermarket to their own clients.

Community banks do not have the customer base to interest companies such as Schwab, noted Mary McAvity, an analyst at Cerulli Associates in Boston.

But community banks have the same need to offer investment products, in part to keep their customers from moving accounts elsewhere.

"The advantage (of the U.S. Clearing program) for community banks is that regardless of their asset size or rural location, it gives them a way to compete with other financial intermediaries," said William W. Reid, president and chief executive officer of ICBA Financial Services Corp. in Memphis, Tenn.

Ms. La Belle declined to say exactly how profitable the discount brokerage business was for U.S. Clearing, noting that "because it's a revenue-sharing model, it moves at the pace of business." But, she added, "it's definitely a nice plus."

To be sure, mutual funds still represent a relatively small slice of U.S. Clearing's discount brokerage business. According to the company, individual stock trades account for about 70% of its bank brokerage sales, compared with 20% for mutual funds.

One reason for this is that many of U.S. Clearing's bank clients have licensed representatives who sell funds in their branches. The ICBA, in fact, acts as a third-party marketer for about a third to a half of the banks using U.S. Clearing's discount brokerage service, providing registered representatives who sell mutual funds and annuities in the banks' branches.

Some community banks said that they had not actively promoted the Quick & Reilly fund supermarket, since they could make more on commissions from funds sold by their registered representatives, who are joint employees of the bank and the ICBA.

"We don't make much money when people buy no-load funds," explained David E. Hayes, the president of Security Bank in Dyersburg, Tenn., a subsidiary of Security Bancorp of Tennessee.

But even small banks are compelled to offer a complete menu of investment products to their customers.

"They want to provide their customers with a full range of products and services," said Les Dinkin, a managing principal of NBW Consulting Group of Westport, Conn. "But because of the economics, their heart may not be in it."

Mike Stotts, a registered representative at Central Bank and Trust in Lander, Wyo., said that many of his customers preferred to buy stocks and mutual funds in person. While the $40 million-asset community bank has used U.S. Clearing's discount brokerage services for four years, the on-line service has not been very popular.

"We still have a lot of people who like to do business face to face," he said. "They trust me. They don't trust themselves on the Internet."

Other observers said that on-line mutual fund distribution was never likely to be a big seller, especially to community banks, which have relatively few customers to start with.

"Will (U.S. Clearing's) clients be big sellers of mutual funds? No," said Ms. McAvity of Cerulli Associates. Community banks are too small to do a lot of volume, she said. But even if the volume is not there, for U.S. Clearing "it's like an add-on market that doesn't cost them anything more," she said. And, sales of funds are on the rise through U.S. Clearing, said the spokesman, Mr. Salmans, although he could not provide specifics.

And there is a customer base out there, even if it is a small one.

"The target audience will be the occasional investor in a no-load fund who values the convenience of a single statement and one-stop shopping," said J. Mark Naber, managing director of consulting firm Optima Group Inc. of Fairfield, Conn.

"In a community bank, people are looking for convenience," he said. "It may not be a huge market, but it is a market." ?

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