When Liberty National Corp. told 450 branch employees to block out time for 10 weeks of mutual-fund classes early this year, the response was a collective groan.

Most branch managers and customer services representatives at the Louisville, Ky., bank company were already swamped with course work on Truth-in-Savings rules and a new computer system.

Five months later, after a steady diet of Saturday classes, pop quizzes, and long homework assignments, Liberty's employees have clearly cottoned to the mutual funds business.

|It All Paid Off'

They chatter knowledgeably about yield curves, bond prices, and diversification techniques -- and sales of the bank's no-load Trademark Funds are going through the roof.

"It all paid off in the end," said Bethany Hendrix, manager of the Bargeville Road branch in Louisville, who graduated from the training program April 1.

"A lot of people are closing out their accounts at other institutions and coming over to put their money in our funds," said Ms. Hendrix, the bank's sales champion, with $350,000 to her credit.

The Liberty training program is a classic example how banks can harness their existing employees to sell investment products. While many banks have chosen to rely on sales forces supplied by outside firms, Liberty and others have found that cultivating their own sales talent is well worth the effort.

Protective Attitude

Malcolm B. Chancey Jr., chairman of the $4.7 billion-asset company, says the decision stemmed from a protective attitude toward customers.

"In our bank culture, strangers generally are not welcomed in the branch selling the product," Mr. Chancey said. "Employees say, |Do I really want my customer talking to that person?'"

It's certainly hard to argue with Liberty's results.

When the company began selling mutual funds through its branches on March 29, it was aiming for weekly sales of $1 million within a few months. The goal was reached by mid-April.

A 50% Increase

The Trademark family of four mutual funds, launched in February with $160 million in converted trust assets, has grown to $240 million, the bulk of the growth coming after March 29.

Like most banks, Liberty has turned to the mutual fund business to hang onto customers who are shunning low-yielding insured deposits in favor of higher-yielding mutual funds.

"If we didn't provide these opportunities, somebody else would," Mr. Chancey said. "So after a lot of soul-searching, we decided to go into it full scale."

Building an in-house sales force is an ambitious strategy, particularly for a bank of Liberty's size. But Liberty prides itself on staying ahead of the pack. It is, for example, one of the two smallest banks in the country to wield securities underwriting powers through a so-called section 20 subsidiary.

By yearend, 900 of Liberty's 2,300 employees will have completed the training program. They receive incentive pay for fund sales, though bank executives declined to provide specifics. Because the funds carry no sales loads, the incentive-pay costs are covered by the bank.

David Kristiansen, Liberty's retail product manager, was tapped to develop the classroom program, dubbed "Trademark Funds University." The curriculum includes 40 hours of in-depth, college-level investment training, and concludes with a rigorous final exam.

Another 16 hours of sales training was provided by Federated Investors, a Pittsburgh-based company that distributes the Trademark Funds.

A Different Level of Training

Because Liberty's mutual fund program is run within the bank, its sales people don't have to be licensed by the National Association of Securities Dealers, Mr. Kristiansen noted.

But bank executives maintain that Liberty's training program is at least as tough as the dealers' group's Series 6 program, the standard qualifying exam for mutual fund sales people.

"We've trained out people at a level you typically don't get in a brokerage firm," said Ronald Holt, executive vice president for trust and development. "We didn't train them in just mutual funds; we trained our people in investments."

Splashy Ad Campaign

Likewise, Mr. Holt said that banks, though often dismissed as newcomers in the mutual fund business, are amply skilled investment managers.

"Banks have been managing larger amounts of money for longer periods than any mutual fund out there," he said.

To alert consumers to its commitment to mutual funds, Liberty has launched a splashy advertising campaign in regional newspapers. The ads, featuring pen-and-ink cartoons, emphasize the advantages of buying no-load funds from a local bank.

Liberty spent four years looking at the mutual fund business before it took the plunge.

A Lot of Research

"We called 40 or 50 banks and identified their strengths and weaknesses," said Mr. Holt. "We did a level of research that lots of banks don't do."

For one thing, the extensive study helped Liberty decide on its no-load sales approach.

Though most banks like the up-front sales fees, or "loads," that they get for selling mutual funds, Liberty figured no-load funds would be more attractive to bank customers, who aren't used to paying up front for traditional deposits.

"We want that customer relationship 10 to 15 years from now, so we need to cater to the market. And the market is no-load," said Mr. Kristiansen.

Alternative Funding in Future?

Mr. Chanceysaid that offering mutual funds may force the bank to look to new funding sources because deposits won't be as plentiful in the future.

Regional banks have long taken for granted "that whatever growth we have can be funded with core deposits," Mr. Chancey continued. "But we're going to have to look at more wholesale funding."

He ticked off a list of alternatives: "Bank notes, deposit notes, commercial paper, national CDs, perhaps a different form of deposit instrument that's tied to an index."

He is not troubled by the changes, which he sees as an evolution in banking. "It provides us an opportunity to be competitive and to produce fee income," he said. "It's going to introduce a new way of doing

banking to our own staff."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.