WASHINGTON -- For all their excitement about the mutual fund business, bankers must become more aggressive and creative if they are going to be contenders for the long-term.

With interest rates rising, some investors are backing away from mutual funds, and the competition for those that remain is heating up, said bankers and industry experts attending the American Bankers Association's annual mutual funds conference here.

"No doubt about it, the mutual fund industry is maturing," said Richard Jones, president of Fleet Investment Services. "If you're going to remain successful, you have to be in this business in innovative ways."

For its part, Fleet is hanging its hopes on sales of no-load mutual funds - a strategy that sets it apart from most banks.

The Rhode Island-based banking company is also reaching out to younger customers through direct marketing, Mr. Jones said.

Meanwhile, Daniel Smith, the ABA's president and chairman of First of America Bank Corp., struck a decidedly upbeat note.

"Within 10 years, the banking industry will absolutely dominate the mutual fund market," said Mr. Smith in opening comments at the annual mutual fund conference of the American Bankers Association.

Mutual funds, which banks had little to do with just a few years ago, are now "a big part of our future, your future and the banking industry's future," said Mr. Smith, who is president of the ABA this year.

Banks will indeed become powerful purveyors of mutual funds, but it remains to be seen if the clout will be wielded by just a handful or spread out over the industry, said Jane Jelenko, partner in the financial services consulting practice at KPMG Peat Marwick.

The mutual fund business is becoming "more commoditized," raising questions about how banks, as newcomers, will fare, Ms. Jelenko said.

"The ultimate victory will be had by the successful niche players and the low-cost providers," she said.

Some bankers said they are looking for ways to expand beyond. their existing customer base.

"It's a big focus for us," said V. Raymond Stranghoener, senior vice president of Boatmen's Trust Co., St. Louis.

The bank, a unit of Boatmen's Bancshares, plans to widen its family of proprietary mutual funds this year, Mr. Stranghoener said.

Boatmen's also plans to become more aggressive about going after the 401(k) rollover market.

These savings plans, which enable customers to earmark a portion of their salaries for retirement while shielding the income from taxes, are expected to hold trillions of dollars by the turn of the century.

"It is extremely easy to talk to someone about a 401(k) plan if you're loaning them money," said Robert Legasey, executive vice president at 440 Financial Corp., a Massachusetts firm that distributes mutual funds for several major banks.

But to succeed in the 401(k) market, banks must "identify the nonbank loyalist and get them to purchase your products and services," he added.

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