As more and more banks jump into the mutual fund business, the rankings of companies that supply funds to banks are starting to shift.
Franklin Resources Inc.'s funds remain the top sellers at banks, but a number of other leading companies have been trading ranks, according to a survey by New York-based Alliance Capital Management.
Putnam, American Funds Gain
The survey, to be released this week, found that the popularity of funds from Putnam Financial Services and Capital Research and Management rose while other fund groups' appeal fell.
Putnam's funds and Capital Research's American Funds each climbed a notch, to the second and third spots, respectively.
Kemper Financial Institutions Group, which ranked No. 2 last year, fell to No. 4. John Nuveen & Co., fifth last year and third in 1989, tumbled to 11th place.
Nuveen executives declined to comment, saying they had not seen the study.
In addition to being ranked as banks' top-selling fund, Franklin funds are also the ones made available by the most banks, followed by Putnam's products.
Kemper moved up from fifth to third, and American Funds climbed from sixth to fourth.
Funds from Alliance and Colonial Mutual Funds gained ground, each jumping five notches to fifth and sixth among funds banks make available.
"Being added to more short lists was the overriding factor" affecting this climb, said William F. O'Grady, head of Alliance's bank division.
Van Kampen Merritt, which ranked fourth in the 1992 and 1989 studies and first in 1987, plummeted to No. 11.
The rankings are based on the number of times respondents mention each fund company. Alliance's survey was sent to 300 commercial banks and 300 S&Ls in May and June. Sixty-one responses were received.
The survey also indicated that banks are increasingly adopting a strong sales culture. As the industry gets more competitive. banks are becoming more geared toward sales and marketing, Mr. O'Grady said.
For example, bank securities sales forces and branch staff are now heavily used to promote funds. This indicates "banks are actively selling, rather than just offering, mutual funds," according to Alliance's study.
Branch Staff Enlisted
Retail distribution of mutual funds through platform or branch programs has increased substantially as well.
This year, 28% of the respondents reported they use platform or branch programs, compared to 19% last year. This indicates that more bank employees, as opposed to outside sales representatives, are being licensed and trained to sell mutual funds.
Over half of the 61 respondents use bank securities companies to distribute their funds, an increase from 42% in 1992.
Third-party vendors are becoming popular, too. Last year just a quarter of respondents used them; 36% do now.
About half the banks responding said salespeople worked on commission; the other half paid salary plus bonuses. Though the proportion of bank representatives receiving straight salaries had been falling, for the first time no banks reported using this method.
Banks have adopted commission structures to compensate sales staffs because "they are trying to attract, incent, and retain" people who can sell, Mr. O'Grady said.
Banks are offering competitive compensation in their drive to attract quality salespeople. The study found the average gross commission in 1992 was $207,025. According to averages reported by the Investment Company Institute, regional brokers are paid about $237,000, and wire house brokers make $285,000. Alliance did not survey salaries in previous studies.
Mutual fund firms, once considered as cash raiders by banks, are being increasingly looked to for marketing support, Mr. O'Grady said.
One indication is that banks especially value product updates and sales ideas from wholesalers. Alliance and Federated wholesalers were rated the best in the study.
In terms of products and services, banks give their top-selling fund groups the highest rating for wholesaler support, the survey found.
Colonial received kudos for its marketing support, sales literature, commission structure, operations and training -- more honorable mentions than any other fund group.
American funds, which also received high ratings for its sales literature and commission structure, got an "excellent" score for product diversity. Putnam, highest in name recognition, got praise for its training too. In terms of performance banks rated Federated at the top.
Banks also reported that performance and track record, followed by stability and safety, are the prime characteristics in determining which funds to offer.
Bank Funds Proliferate
While fund companies are still an attractive product source, the number of banks with proprietary funds continues to grow. Of banks responding, 41% have their own fund families which, on average, represent 31% of their fund sales.
In Alliance's first survey, conducted in 1987, only 17% of the commercial banks polled managed and sold their own funds. Last year just 30% did.
"The herding instinct is definitely at play here," Mr. O'Grady said.
The industry is changing, Mr. O'Grady said. "Those of us who make our living in the bank mutual fund distribution business need to spend some time today figuring out how we will begin to take business from other sources such as wire houses and regional firms," he said.
"Federal regulators used to be banks' marketing department," Mr. O'Grady said. They told banks what they could sell and how. Now, banks want sales tools and promotional materials from their marketing partners, he maintained.
Fund companies need to position themselves as marketing partners, Mr. O'Grady added, because, "at the end of the day, it's the bank's bat and ball."