Massachusetts Financial Services has clinched a coveted deal to market mutual funds through more than 5,800 community banks.
The Boston-based mutual fund company beat 21 rivals to snare the three-year partnership with the Independent Bankers Association of America, a Washington-based trade association.
For the small banks that make up the IBAA, the deal could provide a solid toehold in the booming business of selling mutual funds.
New Frontier
Community banks are widely seen in the mutual fund industry as the next frontier for sales growth. With customers shunning low-yielding bank deposits, hundreds of bigger banks have paved the way into the fund business.
Massachusetts Financial topped some of the mutual fund industry's heavy hitters, reportedly including Fidelity Investments and Putnam Financial Services, in a contest that began last November.
Founded in 1924, Massachusetts Financial is the nation's oldest mutual fund company. It manages $32 billion in assets, and offers a wide array of mutual funds.
Conservative and Consistent
The IBAA cited the company's long-established reputation for conservative management and consistent performance.
In addition, the IBAA was convinced that Massachusetts Financial won't poach customers from the banks it serves, said Gary Teagno, president of the IBAA Community Banking Network, a holding company for various service affiliates developed by the group.
The deal comes on the heels of a similar move by the American Bankers Association.
The ABA, which has a broader membership base, endorsed a program by Wall Street Investor Services, a New York company that sets up sales programs in banks.
The IBAA is taking a more active role by establishing a broker/dealer subsidiary to serve its member banks.
Long-Term Goals
A prime consideration for the IBAA was to develop a program to build customer assets over the long-term and not lose those bank customers to a fund company partner, Mr. Teagno said.
The program will be launched in three to six months, after the IBAA Financial Services Corp. receives a charter and begins getting regulatory approval from the states in which it plans to operate, Mr. Teagno said.
Though he was reluctant to estimate how many banks would participate in the program, Mr. Teagno said it was likely that at least 250 would sip up "within three years."
Jeremiah Potts, who heads Massachusetts Financial's financial institution division, said it could take a year for sales to start chugging along.
Mr. Potts said he expects first year sales of only $ 1 00 million -- not much for a company that sold $2.8 billion in mutual funds in 1992. But Mr. Potts said he expects sales to pick up dramatically in the second year.
To allow banks to tailor mutual fund programs to their own needs, the new venture will offer three levels of service.
In the simplest setup, banks would distribute marketing materials to their customers and direct prospective investors to a toll-free number staffed by IBAA employees.
For banks that want a higher profile, the IBAA would provide a software package to help customers identify their own investment goals before calling the toll-free number for assistance.
At the highest level, banks would have their own licensed investment-sales representative on site to counsel customers and execute trades.
The IBAA considered allowing banks to put their own name on funds, but decided against it. In the end, Mr. Teagno said, it was more important for customers be able to look up fund results in daily newspaper listings.
