To attract investors who want mutual funds without sales charges, KeyCorp is expanding its line of no-load funds and is planning a big marketing push for them.
The Cleveland-based banking company is set to roll out two no-load mutual fund offerings this week, said W. Christopher Maxwell, the executive vice president who heads the mutual fund unit. Overall, the bank said it plans to increase its no-load mutual fund offerings from four portfolios to nine this year.
The new funds will not charge investors up-front or bank-end sales charges, also known as loads.
"There is a large market segment out there that prefers to make their own decisions on what funds to buy, and we see a great opportunity to market no-load funds to them," Mr. Maxwell said in a telephone interview last week.
KeyCorp is the latest regional bank to jump on the no-load bandwagon. NationsBank Corp. and Barnett Banks Inc. began offering their proprietary funds without sales loads earlier this year. More than 40% of mutual funds sold in the U.S. are no-loads, according to the Investment Company Institute.
The new funds will be part of the KeyFunds, a small $250 million-asset fund family acquired when KeyCorp bought the investment management firm Spears Benzak Salomon & Farrell Inc. late last year. The funs will be marketed directly to customers, and will not compete directly with KeyCorp's proprietary Victory Funds, Mr. Maxwell said. Funds in that $6.8 billion-asset fund family are sold primarily through brokers who charge a sales fee for advice.
Observers say KeyCorp runs some risks by offering its mutual funds under two different pricing structures.
Bank brokers, whose livelihood is largely based on the commissions drawn from mutual fund sales loads, may feel snubbed if the bank targeted their customers for no-load fund sales.
The bank "broker-dealer may say go ahead and sell no-loads, and we'll just sell someone else's funds instead," said David Kundert, chief executive of Banc One Investment Management and Trust Group.
R. Gregory Knopf, managing director of Union Bank's mutual fund unit, said marketing a separate family of no-load funds is an expensive proposition because "you can't leverage off your existing funds' brand name."
But KeyCorp's Mr. Maxwell said he isn't worried about potential conflicts with brokers.
"The people that want and need assistance are going to come to our brokers, and people that know what to do, won't," he said.
The company will begin a telemarketing and direct-mail campaign for the new funds this fall, Mr. Maxwell said.
An international index fund and a domestic index fund will be launched this week, and three so-called asset allocation funds - which invest in a mix of stocks, bonds, and cash - will be introduced later this year.
The KeyFunds will be offered as options in KeyCorp's Prism 401(k) product as well, Mr. Maxwell said, adding that retirement plans have "been the most reliable consistently growing piece of our business."