A Louisiana bank is pinning its mutual fund hopes on a fledgling Seattle supplier.
First American Bank and Trust, a $275 million-asset bank in Monroe, La., decided to get its products from Bennington Capital Management largely because it was impressed by the firm's investment advisers.
What's more, Bennington has agreed not to make its funds available to competing banks, and consumers cannot buy the products directly.
"When you're a smaller bank and you are out there competing with larger banks, you need to distinguish yourself in some way," said William W. Keith, executive vice president of First American. "Exclusivity of product was very important to us."
Backed by Top Firms
Bennington's equity, bond, and money market funds, called the Accessor Portfolios, are just a year old and have only $150 million in assets.
But the funds do boast a heavy-hitting cast of advisers, including State Street Bank and Trust Co., Bankers Trust Co., and Wells Fargo-Nikko Investment Advisors.
"We were looking for a product that would offer a consistent and disciplined approach to investment management," Mr. Keith said.
In the end, First American picked Bennington over two firmly established suppliers: Federated Investors and Frank Russell Group.
As a client of a smaller company, it is easier to bend an ear to give suggestions about new products and services, Mr. Keith said. "We'd rather be a large fish in a small pond."
Banks have been accounting for 50% of Bennington's sales. In addition to First American, Bennington serves Zions Bancorp. in Salt Lake City and Bank South in Atlanta.
Until 1994, the bank will sell the funds to trust customers only. Mr. Keith expects $30 million in sales in the first year of operation. The bank gets 10 basis points in fees for each sale of the no load funds.
Focus on Fee Income
"We feel the future of the trust business and the future of the retail business rests on the ability of banks to create noninterest fee income," he said.
The bank hopes Bennington can give it an edge.
For example, Bennington's asset allocation program, "Allocator," is a distinguishing characteristic that should boost sales, Mr. Keith said. The computer program shows investors how different mixes of Accessor funds will perform under various economic conditions.
J. Anthony Whatly, who founded Bennington in 1990 after 15 years at Frank Russell said he wants his company to provide unique services to smaller banks.
The firm's investment advisers, all of whom are subcontracted from other companies, are compensated exclusively on a performance-based fee schedule.
Measured Against Benchmarks
Using market indexes, managers are compensated based on how well their fund performs relative to the benchmark. By contrast, most fund managers receive the bulk of their pay regardless of performance.
"Performance-based fees were extremely important," Mr. Keith said. "We found the managers were willing to stake their reputation and put their money where their mouth is."
Performance-based fees are most often used by large foundations and companies who hire money managers for their pension funds, Mr. Whatley said. The goal is to bring performance-based fees, and institutional management, to the local level, he said.