Consumers are gaining more experience with investing in mutual funds at their banks -- and there's the rub for bankers.

Now that the market for stocks and bonds is slumping, bank customers are learning the hard way that returns on mutual funds can dive as well as soar.

Customers are disappointed, and it shows in the American Banker's 1994 consumer survey.

The proportion of customers who have ever bought stock or bond mutual funds from a bank rose to 16% in 1994, up from 12% in 1993, according to the survey conducted by the Gallup Organization. Funds topped the list of nontraditional services that customers had purchased at a bank.

But satisfaction with mutual funds and other cutting-edge offerings was down, albeit from a high level.

Among the survey respondents who said they had purchased mutual funds, insurance, financial planning, travel services, individual securities, or annuities at a bank, 51% said they were very satisfied.

That is well below the 61% favorable rating for banking services overall. And it is down from last year, when 57% of those surveyed said they were very satisfied with banks' new wave of products.

Industry observers said they believe poor performance of marketsensitive investments accounted for the decline.

"The consumers have got to blame somebody, and they're probably not going to blame themselves. That means the bank's it," said William O. Adcock Jr., chairman of Synergistics Research Corp., Atlanta.

That is not to say bankers are sitting back and letting their customers stew. They are acutely aware that people who come to them for mutual funds and brokerage services need some handholding when markets turn rocky.

"Customers get upset when you're not in communication with them. That's just Marketing 101," said John McCune, chief executive of Norwest Investment Services, a unit of Minneapolis-based Norwest Corp. "The people who are calling their customers now and pointing out their long-term investment goals are the people who are going to have satisfied customers."

By and large, bankers expect customers to continue to demand mutual funds and other alternative products. "Banks really see that their future is in a more complete approach to financial services," said Wayne Wilson, president of U.S. Bancorp Securities, a unit of U.S. Bancorp, Portland, Ore.

The 1994 American Banker survey certainly bears that out. Of 599 participants who said their primary financial institution is a commercial bank, 60% expressed interest in obtaining at least one of seven services that they hadn't purchased at a bank before.

Financial planning led this list, with 35% saying they were interested in the service. Stock and bond mutual funds drew a favorable response from 29%, followed by securities brokerage (24%), annuities (22%), property or casualty insurance (21%), travel services (20%), and life insurance (13%).

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Bankers say that contrary to popular opinion, most of the customers who turn to them for non-traditional services -- particularly stocks, bonds, and mutual funds -- are sophisticated about their finances.

"These are people who have invested elsewhere," Mr. McCune said. Typically, he said, they come to the bank because "they can focus their financial needs in one organization."

Nevertheless, bankers acknowledge, a fair number of novice investors flocked to mutual funds when yields on certificates of deposit were falling, and they have been especially vulnerable to disappointment.

"Over the past two years, we've captured the attention of customers who were not traditional purchasers of investment products," said Mr. Wilson of U.S. Bancorp.

These customers, many of them retirees who relied on investment income to meet their expenses, "really felt pressed by the interest rate environment to expand their risk tolerance," he said.

Now that interest rates are on the upswing, some of these customers are moving back to CDs, "where they have a higher comfort level," Mr. Wilson added.

Even so, bankers say they're not particularly worried about a flight back to CDs, because they are convinced the convenience of one-stop shopping appeals strongly to customers.

"People are really busy today," said Cynthia Gray, director of marketing at Norwest Corp. By keeping sharply focused on what customers want and need from their banks, "we should be able to get the person the right resource for any of their financial needs."

But to accomplish that, banks may need to cultivate product specialists.

"The consumer really wants to deal with somebody more expert, sophisticated, and credentialed than a new-account officer," said Mr. Adcock of Synergistics. "They're not comfortable with somebody who's balancing a checkbook as soon as they finish selling an annuity."

"I don't know how you can do this on a part-time basis," said Mr. McCune of Norwest. "You need a dedicated, single-purpose sales force where investments aren't one of many things they touch."

Convenience isn't the only factor pushing bank customers toward bank-sold investment products. Bank customers are interested in these products because they have gotten some experience with them, according to Mr. Adcock of Synergistics.

He gave 401(k) plans as an example. They allow corporate employees to earmark a portion of salary for retirement, with the earnings accumulating tax-free until withdrawal. Investment options typically include mutual funds and guaranteed investment contracts.

Others see clear evidence that bank customers are growing more attuned to investment risks.

"I think the sensitivity level is up," said Deane Conklin, executive vice president of retail banking at First Commercial Bank, a unit of First Commercial Corp. in Little Rock, Ark. "Everyone reads the papers and listens to the TV."

The result, he said, is customers are taking more responsibility for their financial well-being. "Prospective and existing customers are coming into their banks and making more inquiries of the officers who are delivering a particular service," Mr. Conklin added.

Perceptions of Safety Which has less risk of loss of principal? '93 '94CDs 68% 71%Bank-sold 20% 16%mutual fundsEqual/depends 2% 2%Don't know 10% 11%

Which mutual funds are safer? '93 '94Sold 44% 42%throughbankSold through 27% 26%stockbrokerageEqual/depends 19% 16%Don't know 13% 13%

Source: American Banker/Gallup 1994 Consumer Survey

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