As banks more actively try to convert maturing certificates of deposit, mutual funds are emerging as the investment of choice.
In a Consumer Bankers Association survey of banks that offer investment products, 41% reported they are actively attempting to convert maturing CDs.
Out of the 17% of CDs converted to investments, more than half go into mutual funds, according to survey results released Monday at the association's executive conference in Tarpon Springs, Fla.
|A Permanent Part'
About 42% of converted CDs flow into annuities and the remaining 5% end up in a variety of other investments, the survey found.
"Bank mutual funds and other investments are a permanent part of the bank product line critical if banks are to remain competitive," said Joe Belew, the trade group's president.
The association's findings are based on responses from 32 large financial institutions to a survey on investment products.
Suitability Concerns Addressed
The results strongly suggest that banks are keeping a watchful eye on their investment products sales. "One issue that banks are very concerned about is suitability," said Fritz Elmendorf, the association's communications director.
Of the banks responding, 84% use a review process to independently monitor the suitability of investments for clients. About a quarter also conduct after-sales follow-ups, similar to customer satisfaction surveys, to make sure buyers understand that investment products are not federally insured.
While many banks are conducting them, such formal checks are not nearly as widespread as the use of signed disclosures, Mr. Elmendorf said. Every bank responding required customers to sign a statement acknowledging that investment products are not covered by the Federal Deposit Insurance Corp.
|Wants to Do Things Right'
"This survey demonstrates that banks are making sure their customers understand the nature of these non-FDIC insured products," Mr. Belew said.
Because banks are new to the investment products business, "the industry wants to do things right," Mr. Elmendorf said, and disclosure is an important component of that.
Banks are becoming more seasoned in selling investment products, though: On average, respondents reported that they had been marketing proprietary funds for 2 3/4 years and other institutions' funds for 3 1/2 years.
Nearly Half Had Own Funds
At the retail level, 93% of the respondents offered funds of outside companies, and 42% had proprietary funds. Banks with their own fund families offer an average of nearly nine funds apiece.
The three-quarters of respondents offering annuities had an average of 2,880 sales from June 1992 until June 1993.
The investment products questionnaire was the Consumer Bankers Association's first effort at compiling a wide range of data on bank mutual funds and investment products.
The survey was sent out in July to 800 institutions, including 700 association members. In an accompanying letter, Mr. Belew said results would "help us create a variety of important new peer measurements and benchmarks to allow [banks] to better measure [their] success."
Of the 32 responses received by mid-September, 23 were from commercial banks, six from S&Ls or savings banks, and the remaining three from bank or thrift holding companies. Respondents reported average total assets of $15.2 billion.
At the conference on Monday, banks that have not yet responded to the survey were urged to do so.
Those creating the questionnaire focused on issues discussed at an association conference earlier this year, said Alexander "Sandy" Berry, a principal at Mercer Management Consulting, Richmond, Va., who helped design the survey.
In an interview in July, Mr. Berry said he expected the study "to affirm that more and more banks are getting involved, either directly or indirectly, in the mutual fund business." And, as Mr. Elmendorf noted, they are being very careful about their forays into funds.
