Industry experts are divided over whether the planned merger of Citicorp and Travelers Group will make life tougher for mutual fund houses that sell their wares through the two firms.

Some argue that powerful, vertically integrated goliaths such as the proposed new entity, to be called Citigroup, would be less dependent on third-party vendors for mutual funds.

Citigroup brokers would be able to sell a range of mutual funds manufactured by Citicorp as well as those from Travelers' Salomon Smith Barney unit.

Therefore, the new firm probably would demand more-favorable distribution deals than other brokerage houses, some observers argued.

"They'll dictate the financial terms of the transactions, and the third- party funds had better comply or they will not be part of the system," said Lou Harvey, president of Dalbar Inc., a Boston-based consulting firm.

For instance, Citigroup could force a fund company to slash the operating expenses and management fees that shareholders pay, he said.

Consumers will always demand brand-name products like those from Fidelity Investments and Putnam Investments, Mr. Harvey said. But a distributor with the girth of Citigroup could push its own products as a matter of policy or through subtle pricing pressures.

William N. Shiebler, president of Putnam's retail mutual fund business, said mergers of banks that distribute the Boston-based company's funds have never hurt the company, and that a merger such as the Citicorp/Travelers deal won't either.

"The cost of distribution access is always a concern but we haven't had that kind of experience," he said. "We expect that just as large retailers pay manufacturers for high-quality products, the same thing is going to be true in financial services."

Putnam distributes mutual funds, variable annuities, variable life insurance products, and 401(k) retirement plans through Citicorp and Travelers.

Barry G. Knight, the head of bank distribution for Pioneer Funds Distributor Inc., Boston, predicted that consumer demand for choice in the form of fund wrap accounts would ensure a role for outside product providers at Citigroup and at companies formed through similar deals.

"Consumers want a bunch of choice," he said.

But Mr. Shiebler said most investors still prefer stand-alone funds.

He added that proprietary products at banks have failed to grab share from third-party funds over the last five years.

But Citigroup and other multifaceted financial service companies could change that equation, Mr. Harvey said.

"That much distribution capability suggests that you can survive by selling through your own system," he said. "It almost hints that there really isn't a need for them to focus much on third-party distribution."

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