Just months after introducing its own mutual funds, Marshall & Ilsley Bank dropped the funds' sales charges.

Strong customer resistance to loads that ranged up to 3.5% on the six Marshall funds caused the bank to reconsider the charges almost immediately, said John McCarthy, vice president in charge of the funds.

"It was a big decision that filtered through all elements of the bank," Mr. McCarthy said.

Milwaukee-based Marshall & Ilsley, with $7.8 billion in assets, is one of the latest banks to go against the tide of banks offering load products. It launched its funds in October, and switched to no-load pricing on April 23.

Mr. McCarthy said that though brokers may want the additional fees, some markets may prove too competitive for load funds to thrive.

Local Competition

Wisconsin, like Massachusetts, is home to many no-load mutual funds companies, including Strong/Corneliuson Management Corp. and Nicholas Co.

Milwaukee-based Firstar Corp.'s Portico Funds are also sold no-load.

In Boston, three of the four bank proprietary fund families are no-loads.

Offering a no-load family bucks a trend that goes back at least to the mid-1980s, according to a 1992 study by Alliance Capital Management, New York.

Noting that 75% of banks offer only load funds, Alliance concluded, "No-load funds are disappearing from bank's product lines."

Strategic Error Seen

Avi Nachmany, a partner in Strategic Insight, a New York-based consulting firm, said offering a no-load is a "a strategic error."

Mr. Nachmany said that most banks should charge loads for their proprietary funds, because doing so will build a stronger fee base and enable banks to devote a larger staff of employees to serve customers.

Trying to compete with a no-load giant like Fidelity is a mistake, he said. Banks' niche should be dealing with the majority of investors, who want more advice than those who buy directly from no-load mutual fund companies, he said.

Though some banks with no-load programs are doing well - Fleet Bank, for instance - Mr. Nachmany said the true test of the strategy will come when the market drops.

|It's Against My Religion'

He believes the banks with loads will be in a stronger position to keep customers through better service.

Not everyone agrees.

A down market will just make investors who are becoming more sophisticated look around and say "Hey, what are we paying here?" said David Anderson, executive vice president in charge of the $1 billion no-load UMB Funds for United Missouri Banks.

UMB Funds have been load free since they were introduced, in 1982. "It's against my religion" to offer loaded mutual funds, Mr. Anderson said. "If you're not a salesman, what good is a load?"

M&I customers had similar thoughts about the Marshall funds. Retail sales were negligible" in the months after the funds were rolled out. The fund family, which was started with $1.2 billion in trust assets, has grown to $1.5 billion in assets.

Why did M&I offer loads in the first place?

"The dilemma is that you're trying to satisfy the broker-dealer," Mr . McCarthy said. The additional fees are very appealing, he said.

Class System Rejected

After identifying the resistance, M&I could have switched to a classes-of-shares system that gives different investors various fee-structure options.

But that structure was viewed as too confusing for customers, who would wonder whether the funds are load or no-load, Mr. McCarthy said.

Mr. Nachmany believes some banks selling no-load funds may be missing the mark. Instead of marketing to customers who need the guidance a financial intermediary provides, these banks are going after customers who could just as easily invest directly with a fund company.

Most bankers seem to agree. A 1992 study by Dalbar Financial Services, Boston, found a contradiction between brokerage and bank views toward sales, loads.

While brokers identified loads as the biggest source of sales resistance, bankers said customers aren't worried about loads.

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